Gasoline is one of the major fuels consumed in the United States 

and the main product refined from crude oil. Consumption 

in 2007 was about 142 billion gallons, an average about 390 

million gallons per day and the equivalent of about 61% of 

all the energy used for transportation, 44% of all petroleum 

consumption, and 17% of total U.S. energy consumption. 

About 47 barrels of gasoline are produced in U.S. refineries 

from every 100 barrels of oil refined to make numerous 

petroleum products. Most gasoline is used in cars and light 

trucks. It also fuels boats, recreational vehicles, and farm, 

construction and landscaping equipment. While gasoline is 

produced year-round, extra volumes are made and imported 

to meet higher demand in the summer. Gasoline is delivered 

from oil refineries mainly through pipelines to an extensive 

distribution chain serving about 167,500 retail gasoline 

stations in the United States.1 There are three main grades of 

gasoline that are based on octane levels: regular, mid-grade, 

and premium. Premium grade is the most expensive; the price 

difference between grades is generally constant at about ten 

cents per gallon.

1

National Petroleum News, 2007 Industry Scorecard.

What are the components of the 

retail price of gasoline?

The cost to produce and sell gasoline to consumers includes 

the cost of crude oil to refiners, the costs to refine, market 

and distribute the gasoline, and finally the retail station costs 

and taxes. Retail pump prices reflect these costs, as well as 

the profits (and sometimes losses) of refiners, marketers, 

distributors and retail station owners.

The cost of crude oil as a share of the retail price varies over 

time and among regions of the country. In 2007, the price 

of crude oil averaged about $68 per barrel and accounted for 

about 58% of the national average retail price of a gallon of 

regular grade gasoline (Figure 1). In comparison, in 2005 

the average crude oil price was $50 per barrel and the crude 

oil cost was 53% of the retail price. From 2000 to 2007 the 

average crude oil price was about $39 per barrel and the crude 

oil cost share of the retail gasoline prices averaged 48%. 

Figure 1. What Do We Pay for in a Gallon of Regular Grade?

Source: Energy Information Administration

Federal, State, and local government taxes are the next largest 

part of the retail price of gasoline. In 2007, taxes (not including 

county and local taxes) accounted for about 15% of the cost of 

a gallon of regular gasoline. Federal excise taxes were 18.4 

cents per gallon and State excise taxes averaged 21.5 cents 

per gallon.2 Eleven States levy additional State sales and other 

taxes, some of which are applied to the Federal and State excise 

taxes. Additional county and city taxes can have a significant 

impact on the price of gasoline in some locations. From 2000 to 

2007, taxes averaged about 24% of the retail gasoline price.

2

Energy Information Administration, Petroleum Marketing Monthly,December 2007,

 Table EN1 at: http://www.eia.doe.gov/pub/oil_gas/petroleum/data_publications/petroleum_ 

 marketing_monthly/historical/2007/2007_12/pmm_2007_12.htm

Refining costs and profits were about 17% of the national 

average retail price of regular gasoline in 2007, close to the 

2000 to 2007 average of 16%. This component’s share varies 

from region to region mainly due to the different gasoline 

formulations required in different parts of the country.

Distribution, marketing, and retail dealer costs and profits in 

2007 were 10% of the gasoline price, down from the 2000 

to 2007 average of 12%. Most gasoline is shipped from the 

refinery first by pipeline to terminals near consuming areas, 

where it may be blended with other products (such as ethanol) 

to meet local government and market specifications, and is then 

delivered by tanker truck to individual stations. Some retail 

outlets are owned and operated by refiners, while others are 

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A Primer on Gasoline Prices
independent businesses that purchase gasoline from refiners 

and marketers for resale to the public. The price on the pump 

includes the retailer’s cost to purchase the finished gasoline 

and the costs of operating the service station. It also reflects 

local market conditions and factors, such as the desirability of 

the location and the marketing strategy of the owner.

Why do gasoline prices 

fluctuate?

Retail gasoline prices are mainly affected by crude oil prices 

and the level of gasoline supply relative to demand. Strong and 

increasing demand for gasoline and other petroleum products 

in the United States and the rest of the world is exerting intense 

pressure on available supplies. Even when crude oil prices are 

stable, gasoline prices fluctuate due to seasonal demand and 

local retail station competition. Gasoline prices can change 

rapidly if something disrupts the supply of crude oil or if there 

are problems at refineries or with delivery pipelines.

Seasonal demand for gasoline - Retail gasoline prices tend 

to gradually rise in the spring and peak in late summer when 

people drive more, and then drop in the winter. Good weather 

and vacations cause U.S. summer gasoline demand to average 

about 5% higher than during the rest of the year. If crude oil 

prices do not change, gasoline prices typically increase by 10-

20 cents from January to the summer.

Crude oil supply and prices – Crude oil prices are determined 

by worldwide supply and demand. Events in crude oil markets 

that caused spikes in crude oil prices were a major factor in all 

but one of the five major run-ups in gasoline prices between 

1992 and 1997, according to the National Petroleum Council’s 

study “U.S. Petroleum Supply - Inventory Dynamics.” Rapid 

gasoline price increases occurred in response to crude oil 

shortages caused by the Arab oil embargo in 1973, the Iranian 

revolution in 1978, the Iran/Iraq war in 1980, and the Persian 

Gulf conflict in 1990. The cost of crude oil has been the main 

contributor to the most recent gasoline price increases. World 

crude oil prices reached record levels in 2007 due mainly to 

high worldwide oil demand relative to supply. Other factors 

contributing to higher crude oil prices include political events 

and conflicts in some major oil producing regions, as well as 

other factors such as the declining value of the U.S. dollar (the 

currency at which crude oil is traded globally).

The Organization of Petroleum Exporting Countries (OPEC) 

has significant influence on world oil prices because its 

members produce over 40% of the world’s crude oil and 

have more than two-thirds of the world’s estimated crude oil 

reserves. OPEC members are also the only countries that have 

“spare production capacity” and the ability to bring more oil 

into production relatively quickly. Since it was organized in 

1960, OPEC has tried to keep world oil prices at a target level 

by setting production levels for its members.

Figure 2. Average Annual U.S. Motor Gasoline Prices, 19944 

to 2007, By Grade.

Source: Energy Information Administration

Gasoline supply and demand imbalances – Gasoline 

prices tend to increase as the available supply of gasoline grows 

smaller relative to real or expected demand or consumption. 

The supply of gasoline is a function of crude oil supply and 

refining, imports of refined gasoline, and gasoline inventories 

(stocks). Stocks are the cushion between major short-term 

supply and demand imbalances, and their levels can have a 

significant impact on gasoline prices. If refinery or pipeline 

problems and/or reductions in imports cause supplies to 

decline unexpectedly, gasoline inventories (stocks) may 

drop rapidly. This may cause wholesalers to bid higher for 

available supply over concern that future supplies may not be 

adequate. Imbalances have also occurred when a region has 

changed from one fuel type to another (e.g., to cleaner-burning 

gasoline) as refiners, distributors, and marketers adjust to the 

new product. Gasoline may be less expensive in one summer 

when supplies are plentiful vs. another summer when they 

are not. Prices for all commodities fluctuate, but gasoline 

prices are generally more volatile than prices of other goods. 

For example, consumers generally have options to substitute 

between food products when prices change but most do not 

have that option for fueling their vehicles.

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Figure 3. 2007 Regular Grade Gasoline Prices at Retail Out- 

 lets by Region (dollars per gallon, including taxes). 

Source: Energy Information Administration, EIA-878, Motor Gasoline 

PriceSurvey.

Why are gasoline prices higher in

some regions than in others

Although price levels vary over time, Energy Information 

Administration (EIA) data indicate that average retail gasoline 

prices are often highest in certain States or regions (Figure 3). 

Besides taxes, there are other factors that contribute to regional 

and even local differences in gasoline prices:

Distance from supply – Retail gasoline prices tend to be 

higher with greater distance from the source of supply: ports, 

refineries, and pipeline and blending terminals. About 66% of 

the crude oil processed by U.S. refineries in 2007 was imported, 

with most transported by ocean tankers. The U.S. Gulf Coast 

is the source of about 40% of the gasoline produced in the 

United States and the starting point for most major gasoline 

pipelines.

Supply disruptions - Any event that slows or stops production 

of gasoline for even a short time, such as planned or unplanned 

refinery maintenance or the refinery shutdowns that occurred 

when the Hurricanes Katrina and Rita hit the Gulf Coast in 2005, 

can prompt bidding for available supplies. If the transportation 

system cannot support the flow of surplus supplies from one 

region to another, prices will remain comparatively high.

Retail competition and operating costs – Pump prices are 

often highest in locations with few retail gasoline stations.. 

Even stations located close together have may have different 

traffic patterns, rents, and sources of supply that influence their 

pricing. Drivers face a trade-off between stations with high 

prices and the inconvenience of driving further to find a station 

with lower prices.

Environmental programs - Some areas of the country are 

required to use special “reformulated” gasoline with additives 

to help reduce carbon monoxide, smog, and air toxics that 

result when gasoline is burned or when gasoline evaporates 

during fueling. Other environmental programs put restrictions 

on fuel transportation and storage. These programs tend to add 

to the cost of producing, storing, and distributing gasoline. 

About a third of the gasoline sold in the U.S. is reformulated. 

Each oil company prepares its own formulation to meet Federal 

emission standards.

How do Gasoline Prices in 2007 

compare with historical prices?

There are two ways to compare recent prices with historical 

prices. One is to compare the price actually paid at the pump 

or the “nominal” price. The other is to compare the “real” 

price, which is the price adjusted for inflation, so that prices in 

the past are in “today’s” dollar value. The figure below shows 

the average annual nominal and real prices of regular gasoline 

from 1919 to 2007, where the real price is based on the value 

of the dollar in 2007. During that period, consumers paid the 

highest prices for gasoline in real terms in the early 1920’s and 

1980’s. 

Figure 4. Historical Average Annual Gasoline Prices – Nominal 

and Real (Regular Grade)

Source: Energy Information Administration, Short Term Energy Outlook, 

January 2007.

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This brochure is available at:

http://tonto.eia.doe.gov/reports/reportsA.

asp?type=other

For links to current gasoline prices and analyses, see:

http://tonto.eia.doe.gov/oog/info/gdu/gasdiesel.asp

The Energy Information Administration is an independent 

statistical agency within the U.S. Department of Energy 

whose purpose is to provide reliable and unbiased energy 

information.

For further information, contact:

National Energy Information Center

Washington, DC 20585

Telephone: (202) 586-8800

E-Mail: infoctr@eia.doe.gov 

&

EIA’s Web site at:

Why are California gasoline prices 

higher and more variable than others?

California prices are higher and more variable than prices in 

other States because there are relatively few supply sources 

of its unique blend of gasoline outside the State. The State of 

California’s reformulated gasoline program is more stringent than 

the Federal government’s. In addition to the higher cost of this 

cleaner fuel, there is a State sales tax of 7.25 percent on top of 

an 18.4 cent-per-gallon Federal excise tax and an 18.0 cent-pergallon State excise tax.

California refineries need to be running near full capacity to meet 

the State’s gasoline demand. If more than one of its refineries 

experiences operating problems at the same time, California’s 

gasoline supply may become very tight and prices can soar. Even 

when supplies can be obtained from some Gulf Coast and foreign 

refineries, they can take a relatively long time to arrive due to 

California’s substantial distance from those sources. The farther 

away the necessary relief supplies are, the higher and longer the 

price spike will be.

California was one of the first States to ban the gasoline oxygenate 

additive methyl tertiary butyl ether (MTBE) after it was detected 

in ground water. Ethanol, a non-petroleum product usually made 

from corn, is being used in place of MTBE. Gasoline with ethanol 

requires changes in the way gasoline is produced and distributed. 

Some supply dislocations and price surges occurred in the 

summer of 2003 as the State moved to ethanol and away from 

MTBE. Similar problems have also occurred as a result of other 

fuel transitions.