If you have noticed the prices moving up and down the gas station, you may have wondered what causes gas prices to fluctuate. Or maybe you have noticed higher or lower gas prices in other states during a road trip.
Price for crude oil
The largest contributor to the price of gas is the cost of crude oil, US . Energy Information Administration (EIA). Also called fossil fuel, crude oil is the liquid that is removed from the ground and sent to refineries to become petrol.
Crude oil prices are largely based on supply and demand. Therefore, as crude oil production rises, prices may decrease, but costs may rise as production decreases. Economic conditions play a role in the crude oil price, says the EIA. When the economy goes well, commodities such as crude oil demand to increase, while prices fall.
Government and federal taxes are embedded in the price of a gallon of gas, Energy.gov says. While the same federal tax is charged at each gas station in the United States, each state sets its own tax rates. Some states charge VAT, while others may include other costs, such as environmental charges, in the price of a gallon of gas.
Government rates are not the only reason why gas prices may vary depending on location. Gas prices may vary depending on the state or region due to the distance from the supply, according to the EIA. Supply sources may include pipeline and refineries. So, for example, say the source of the gasoline near the Gulf Coast. States in that region can see lower prices on the pump because they are closer to the source of gasoline than states along the west coast or in New England.
In addition, some states have adopted laws that require the use of "cleaner" fuel that has less environmental impact. This fuel usually costs more to produce and is offered by limited suppliers, which makes it more expensive for drivers to buy, explains the EIA.
Retail competition can also affect gas prices, even within the same city. Gas station owners can adjust their prices based on how many competitors are in the vicinity, says MKB.
Gas station owners may also consider their operating costs, such as pay and rent payments at the time of employment, when setting up their prices, the EIA says. Other costs, such as fuel distribution, marketing and refining, also play a role in the price of gas.
While you can't control the price of gas, you can get a better understanding of some when filling in the factors that contribute to the price you pay on the pump.