Most consumers tend to notice variability in gas prices, but perhaps none more than RV travelers. When one stop at the gas pump on your road trip can cost hundreds, you tend to pay attention. But what factors influence gas prices?
Most people know that the price at the pump has something to do with the price of crude oil, but who determines the price of crude oil and why are prices so different service station to service station? To answer these questions, we need to look at the nitty-gritty of what drives gasoline prices.
What Drives Gasoline Prices?
There are several different factors that drive gasoline prices in the US. 2/3 of your cost at the pump is related to the current cost of crude oil but there are determining factors within that cost as well. With a little help from our friends at the U.S. Energy Information and Administration (EIA) and the American Petroleum Institute (API), we have found 11 main factors that affect US gasoline prices.
Of course, taxes have a large determining factor for the price you pay at the pump. A mixture of taxes from both federal and local governments will help determine the final cost of gasoline.
Your geographic location is also a major player when it comes to gas price. Those who lend closer to a supplier tend to have smaller gas prices while those who are farther away from refineries, ports and other lines of trade tend to pay more. That’s why people in the gulf region tend to pay less than those on the west coast.
The Organization of Petroleum Exporting Countries (OPEC) can decrease or increase their production depending on different market factors. What they decide often drives the price of crude oil.
There are many non-OPEC countries that the United States imports oil from, such as Canada. Like OPEC, these producers may make changes to their production volume depending on several factors, what they decide makes an impact on your price at the pump.
Not a big surprise here. Geopolitics can play a role in determining oil prices due to different relationships between countries and their leaders.
Refinery and Refining Costs
Different refineries have different processes for refining oil. The cost of refining and production at these different facilities play a role when it comes to the price of gas.
Service Station Marketing and Subtleties
The convenience store you tend to gas up at also tends to have a direct influence on gas prices. The price of goods in the store may be determined by the price at the pump, and vice-versa.
China and other developing countries also play a factor in your end price. If you remember supply and demand from Economics 101, you know that the two help fuel one another. The greater the demand, the higher prices will be.
Oil is a traded commodity and speculation on what the market will do usually influences what prices will do. The more leaps and bounds oil futures go through, the more your prices will roller coaster.
Currency Exchange Rates
Currency, be it strong or weak, will play around with your oil price costs. Currency in Europe, North America, and Asia all work for or against one another, which affects gas prices and other market commodities across the globe.
Weather and Climate
Even Mother Nature has an influence on the pump. Milder weather tends to produce lower gas prices while extreme weather tends to produce higher prices. So make sure to fill up before hurricane season.
All these unique factors work together to play a role in what you end up paying at the pump. It could be a strong Canadian dollar, high weather forecasts or your location next to a refinery. In the end, these many different factors will determine what drives gasoline prices.