Though gasoline is made from crude oil, the price of oil doesn't by itself determine the price of gas. When you buy gas at the pump, you're paying for the crude oil, but you're also paying for a refinery to convert that oil into gas. You're also covering the marketing and distribution of that gas, as well as the profits taken out by each middleman along the distribution chain. Taxes push up the price even more. According to the Energy Information Administration, the price of crude oil accounted for only 44 percent of the price of gasoline in 2003.
Prices at the pump seem to go up as soon as the price of oil rises. But station owners aren't selling gas made from that oil. What gives?
When the price of oil goes up, some station owners adjust their prices at the pump to prepare for an increase in wholesale gas prices down the line. Once wholesale gas prices do go up, there isn't much delay before station owners feel the pinch: A busy station gets shipments every day, or even multiple times per day, so it's likely to face any price hikes as soon as they occur. Long-term supply contracts between station owners and their suppliers are no help: They often stipulate a floating price pegged to the cost charged at the refineries. So, a price change at the refinery would quickly pass along to a station owner.
Explainer thanks Neal Davis, of the Energy Information Administration, John Felmy of the American Petroleum Institute, Bob Slaughter of the National Petrochemical and Refiners Association, Greg Scott of the Society of Independent Gasoline Marketers of America, Tom Dicke of Southwest Missouri State University.
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