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Gas price: what does it depend on?

If you’ve noticed the price changes at the various gas stations, you may have wondered what caused the gas prices to fluctuate. Or, maybe you’ve noticed higher or lower gas prices in other states during a road trip, you’re not alone. From the location to tax rates, most people have no or very little idea of how these prices come about. The general rule, according to the U.S Energy Information Administration (EIA), is that of two-thirds of the cost of gas at the pump station is determined by crude oil cost. The rest is a combination of taxes, refining, location, distribution and marketing.

Here’s a look at some of the key factors that the price of gas depends on:

Distribution and marketing

Distribution and marketing contributes about 15 percent in the overall cost of a gallon of gas, when considering the shipment from refineries terminals to consuming areas. We have different marketers who come up with different prices from the refiners to the last marketer in the value chain. Different locations and the business strategies adopted by Individual gasoline retailers determine what the end-user gets as the price of a gallon of gas. So, prices of gas depend on distribution and marketing.


As mentioned in distribution and marketing section, where you purchase your gas determines the price you get. Distances from the lifting to the selling points are factored into the price of the gas. Consumer’s location plays a major role in the price index; those consumers nearer to refinery or supply area often see lower pricing.


Political influences/events are a determinant factor to changes in gas prices. These political influences create uncertainty about future demand or supply, which lead to high volatility in prices. The volatility of gas prices is as a result of low responsiveness or supply fall created by the political upheaval in the affected region. Switching to other source of energy within that short term becomes so challenging and the resultant effect is price surge.

Most of the crude oil reserves in the globe are sited in the regions that are prone to political unrest, resulting to the disruptions of oil exploration activities. Most notably are the Iranian revolution, the Arab Oil Embargo in 1973–1974, the Iran-Iraq war in the 1980s,the Persian Gulf War in 1990–1991 and September 11 Attacks  in 2001. In recent years, conflicts and political events in the Persian Gulf, the Middle East, Venezuela and Libya have contributed to increases in oil prices and world oil supply disruptions.