The price of crude oil is the main determinant of the price of gasoline, but refining costs, federal, state and local taxes, and marketing and distribution costs also contribute to gasoline prices. And, the price of gasoline varies by state and region because of differences in gasoline specifications, state and local taxes, and costs to transport fuels into the state or region.
Crude oil is the primary input used to make gasoline, and as a result, the cost of crude oil has the most significant impact on the price of gasoline at the pump, accounting for about 53% of the retail price. The price of crude oil is determined in the global market, rather than by the refiner. That price is affected by global oil production levels (notably OPEC production but increasingly US production); demand for all refined petroleum products like gasoline, diesel and jet fuel; the world economy; and geopolitics.1
Refiners are the first purchasers of crude oil and refining costs account for about 17% of what we pay at the pump. Refining costs include wages, equipment, financing, energy, and other expenses. Marketing and distribution adds another 12% to the retail price. Retailers set prices based on local competition, factoring in the costs for acquiring and delivering fuel and operating retail outlets.2
Federal and state taxes combined account for an average of 18% of the price of gasoline, and that's not even counting local taxes. Total taxes per gallon of gasoline range from about 31 cents to more than 77 cents per gallon.3
Many retail gasoline outlets fly the flag of a major oil company, but that doesn’t mean the company owns or operates the retail outlet. 95% of retail gasoline outlets are independently owned small businesses that have paid franchise fees.4