What the Price of Gasoline Is Made Of
The number on the sign at a filling station is a single figure, printed in one color, changed by hand or by a switch. It looks like one decision made by one person. It is closer to a receipt — a running total of separate costs, settled by different people in different places, most of them before anyone pulled in.
Crude oil and petroleum product prices are the result of thousands of transactions taking place simultaneously around the world at all points in the supply chain, from the crude oil producer to the individual consumer. The retail price of gasoline includes the cost of crude oil, taxes, refining costs and profits, and distribution and marketing.
The Four Components of a Retail Gasoline Price
Four things sit inside that number. Retail pump prices reflect those components and the profits — and the losses — of refiners, marketers, distributors and retail station owners.
The largest component is the cost of crude oil. Its share of the retail gasoline price varies over time and across regions of the country. Many factors influence crude oil prices.
Components of the retail price of gasoline, as described by the U.S. Energy Information Administration. The state tax average is as of January 2026.
| The component | What it is | What makes it differ from one place or time to another |
|---|---|---|
| Crude oil | The largest component of the retail price. | Its share of the retail gasoline price varies over time and across regions of the country. Higher U.S. oil production in the past several years has helped to slow the rise of oil and gasoline prices. |
| Taxes | A federal tax of 18.40 cents per gallon, plus state and local taxes. | State taxes and fees averaged 33.55 cents per gallon as of January 2026. Sales taxes, along with local and municipal taxes, may have a large effect on the retail price in some locations. |
| Refining costs and profits | The characteristics of the gasoline produced depend on the type of crude oil used and the processing technology available at the refinery. | Refining costs and profits vary seasonally and by region, partly because different gasoline formulations are required to reduce air pollution in different parts of the country. |
| Distribution and marketing | Distribution, marketing and retail dealer costs and profits are also included in the retail price. Most gasoline is shipped from refineries by pipeline to terminals near consuming areas, where it may be blended with other products such as fuel ethanol, and tanker trucks deliver it to individual stations. | Even retail stations close to each other can have different traffic patterns, rent and sources of supply that affect their prices. The number and location of local competitors can also affect prices. |
Time enters the same way. Gasoline demand usually increases in the summer, which generally results in higher prices.
Federal, State, and Local Taxes on Motor Gasoline
Taxes are the part of the price written down in advance. The federal tax on motor gasoline is 18.40 cents per gallon, which includes an excise tax of 18.30 cents per gallon and the federal Leaking Underground Storage Tank fee of 0.1 cents per gallon.
As of January 2026, state taxes and fees on gasoline averaged 33.55 cents per gallon, according to EIA. Sales taxes, along with local and municipal government taxes, may have a large effect on the retail price of gasoline in some locations.
Where the Crude Oil Price Comes From
Crude oil prices are driven by global supply and demand. Economic growth is one of the biggest factors affecting petroleum product — and therefore crude oil — demand.
The world’s transportation sector depends almost totally on petroleum products such as gasoline and diesel fuel. Many countries also rely primarily on petroleum fuels for heating, cooking or generating electricity. Petroleum products made from crude oil and other hydrocarbon liquids account for about one-third of total world energy consumption.
The Organization of the Petroleum Exporting Countries can significantly influence oil prices by setting production targets, or quotas, for its members. OPEC includes countries with some of the world’s largest oil reserves.
Compliance with those quotas is mixed, because production decisions are ultimately in the hands of the individual members.
Spare Capacity and Supply Disruptions
EIA defines spare capacity as the volume of oil production that can be brought online within 30 days and sustained for at least 90 days.
Spare capacity is an indicator of the world oil market’s ability to respond to real and potential disruptions in world oil supplies. If a disruption occurs, producers can use spare capacity to moderate increases in world oil prices by boosting production to offset reduced supplies.
The difference between oil market demand and supply from non-OPEC sources is often referred to as the call on OPEC, because OPEC members maintain the world’s entire spare crude oil production capacity. Saudi Arabia, the largest OPEC oil producer, has historically had the largest share of that spare production capacity.
Then there is the question of why a disruption moves the price as far as it does. Oil price volatility is tied to low responsiveness, or inelasticity, of supply and demand to price changes in the short term.
Crude oil production capacity, and the equipment that uses petroleum products as its main source of energy, are relatively fixed in the near term. It takes time to develop new supply sources or to vary production. And when prices rise, switching to other fuels or increasing equipment fuel efficiency in the near term is challenging for consumers to do.
These conditions may require a large price change to rebalance physical supply and demand.
Most of the crude oil reserves in the world are located in regions that have been prone to political upheaval, or in regions that have had oil production disruptions because of political events. Geopolitical events and severe weather that disrupt the flow of crude oil and petroleum products to market can affect prices, and they may create uncertainty about future supply or demand, which can lead to higher price volatility.
Given that history, market participants constantly assess the possibility of future disruptions. Beyond the size and duration of a potential disruption, they also weigh the availability of crude oil stocks and whether other producers can offset a supply loss. When spare capacity and inventories are low, a potential disruption may have a greater impact on prices than examining current demand and supply alone would suggest.
Major oil price shocks have occurred at the same time as political events that caused supply disruptions, most notably the Arab Oil Embargo in 1973–74, the Iranian revolution, the Iran-Iraq war in the 1980s, and the Persian Gulf War in 1990–91. In recent years, conflicts and political events in the Middle East, the Persian Gulf, Libya and Venezuela have contributed to world oil supply disruptions that have resulted in higher oil prices.
Severe cold weather can strain product markets as producers attempt to supply enough product, such as heating oil, to consumers in a short amount of time. Refinery outages or pipeline problems can restrict the flow of crude oil and petroleum products to market.
Their pull on crude oil prices tends to be relatively short lived. Once the supply disruption subsides, the supply chains adjust and prices usually return to their previous levels.
Contracts, Futures, and Spot Transactions
Contract arrangements in the oil market cover most crude oil that changes hands. Oil markets are essentially a global auction, and the highest bidder wins the available supply.
Crude oil is also traded in futures markets. A futures contract is a standard contract to buy or sell a specific commodity of standardized quality at a certain date in the future.
Producers who want to sell oil in the future can lock in their desired price by selling a futures contract today. Consumers who need to buy crude oil in the future can guarantee the price they will pay by buying one.
Market participants or speculators who neither produce nor consume crude oil buy and sell them in anticipation of price changes.
Crude oil is also sold in spot transactions — on the spot purchases of a single shipment for prompt delivery at the current market price. Prices in spot markets send a clear signal about the balance of supply and demand. Rising prices indicate that additional supply is needed, and falling prices indicate there is too much supply for current demand. Futures markets also provide information about the physical supply and demand balance, and about the market’s expectations.
The tax lines are figures in cents, set in advance.
The number on the sign is a total that other people finished settling before anyone pulled in. Some of it was written into law, in cents, and then left alone. The crude oil in it was priced by a market that had not stopped moving while the sign was being changed.