Why Are Gas Prices So High? The Answers May Surprise You

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It seems as if the price of gasoline is always on the rise, and it never really gives anybody a breather. And while historical data doesn't exactly show this to be wholly true, it definitely has seasonal swings and long-term trends that can take your breath away.

For example, according to the Federal Reserve Bank of St. Louis, the average price of unleaded regular gasoline in America in June 2024 was $3.601 per gallon. Compare that to the month I started driving, April 1996. It was $1.251 nationally then (it was under a buck where I came from).

Gas prices peaked in June 2022 at $5.058 nationally, so relatively speaking, that $3.601 looks pretty good. But still, it's higher than it was earlier this year, when gas was as low as $3.221 in January. So, what gives? Why are gas prices so much higher now?

What goes into the price of gasoline

I was curious about what went into the price of gasoline, so I went to a knowledgeable source: the American Petroleum Institute. This industry group actually knows what causes gas prices to go up because it knows what goes into gas prices and has studied trends in the industry for 90 years.

There are four major contributors to gas prices.

1. Crude oil prices

The price of crude oil is responsible for about half the cost of gasoline at the pump, and that makes sense because you really can't have gas without it. So as crude oil prices soar, so do gasoline prices. The greater the demand, such as in higher driving windows like summer, the higher the cost.

2. Refining costs

You can't just use crude oil as it is -- it has to be processed and refined to be able to be used in cars. The labor, equipment, other raw materials, and so forth are responsible for about a quarter of the cost of gasoline prices.

3. Distribution and marketing costs

Distribution and marketing are important for every kind of industry, and it's no different for gasoline. From trucking gas to gas stations to winning over new commercial customers, distribution and marketing can account for about 11% of the price of gas at the pump.

4. Federal and state taxes

We pay a lot of taxes on gasoline that we may not even be aware of. Tax on gasoline is paid by the gallon, and the state tax can vary a lot (that's part of the reason that gas in California is so much more expensive than in Texas), but you can expect that about 14% of your gasoline price is taxes. Federal gasoline tax is $0.184 per gallon, and the average of state taxes is $0.324 per gallon.

All of these factors together make up the price of gasoline, no matter where you live in the United States.

One more important factor

Gasoline itself is also reformulated throughout the year to work based on the weather conditions. If it's cold outside, gas must be blended to have a higher Reid Vapor Pressure (RVP), which allows it to evaporate at a lower temperature; if it's hot out, a lower RVP is necessary to keep gas from evaporating too quickly.

Butane is the major component that's modified to change from winter to summer RVPs. Since butane is cheaper than other gasoline components, winter blend gasoline is cheaper because it contains more of this fuel. Due to this, the price of gasoline will change dramatically when it's time to switch from winter to summer blends, and back again.

What to do about high gas prices

You know why gasoline is so high right now, but short of blending your own, is there anything you can really do about it? (Do not blend your own fuel at home.)

YES! There are a few ways to stretch your gas budget :

• Keep your tires properly inflated
• Reduce the weight of your car by cleaning your trunk out
• Drive on interstates with your air conditioner running (instead of open windows) to reduce drag
• Maintain a cruising speed between 30 and 55 miles per hour on surface roads (where possible)
• Always accelerate and brake steadily

But you can also take advantage of cash back programs at gas stations or opt for a membership to a discounted gas station. For example, Costco offers serious savings on gasoline. Right now, on July 23, 2024, my local Costco in Springfield, Missouri, has gas for $3.05 per gallon; its nearest competition is at $3.17. It's a savings of $0.12 per gallon savings -- it can add up quickly if you're road tripping or even just driving to a lot of summer ball games.

We can't do a lot about high gas prices, but we can plan for them, do our best to find the lowest gas prices around, and even spend a little money on memberships to ensure we get gas prices that can't be beat.

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