Filling up your car with gas isn’t as easy as it used to be. Many consumers remember the days of pulling into any gas station and filling up the tank for 20 dollars or even less. But those days are long gone. Gas prices are much higher and will stay that way for the foreseeable future. How high are prices compared to the good old days? In 2023, the average gas priceacross the US was $3.52/gallon. For comparison, in 1990, the average price was $1.30/gallon; in 2000, it was $1.48/gallon.
In the early 2000s, an energy crisis began driving up the price of gas. Several factors contributed to the rise in crude oil prices, including unrest in the Middle East, increased demand from China, economic uncertainty, and petroleum reserve supply issues. These issues have all led to the average gas price steadily rising after years of relative stability. Fuel prices remain high as inventory issues, supply chain crises, and environmental concerns drive increased costs. Prices have only dipped during crises like the Great Recession in 2008 or the COVID-19 pandemic.
Gas prices are very important to consumers and significantly affect consumer sentiment. One of the reasons gas prices are so significant to consumers is because the price of gas determines consumers’ ability to spend, shop, and travel. When prices are low, consumers are willing to travel and spend more. When prices are high, consumers stay home and reduce their spending habits. In a survey from NACS, respondents reported that higher gas prices make them reconsider their spending habits, with 88% saying it affects how they buy groceries, 87% reporting that it affects their snacking habits, and 74% saying it affects their dining out habits.
Filling up our vehicles with gasoline is essential for most people. We need our cars to get to school, work, and other appointments, so it’s an expense that we have to take on, like a house payment or utility bills. But unlike many of our other household bills, gasoline prices constantly change. We get used to seeing different prices from station to station, which affects our perception of gas and the price we pay for it.Joanne Hsu, Director of the Surveys of Consumers from the University of Michigan, said “There is no other consumer good or service with price tags visible from the street, all the time. She continues, “[when you fill up] you stand there watching your purchase cent by cent bite into your bank account.” These factors have a significant psychological effect on our perception of gasoline prices.
How is gasoline priced?
Several factors determinegasoline prices. The most crucial factor is the price of crude oil, from which gasoline is derived. As we saw in the early 2000s, gasoline prices rose when crude oil prices rose. When prices fall, gasoline prices dip as well. But crude oil is not the only factor determining the price you pay at the pump. The cycle of manufacturing gasoline from crude oil also affects the price.
Crude oil must be refined and processed in refineries nationwide into gasoline. This process includes distillation, blending, and additive mixing to create different gasoline blends. Any blimp or service disruption in the refinery process, from a mechanical shutdown to additive supply issues, can impact gasoline supply and prices.
Once manufactured and refined into different blends, gasoline is shipped and sold to various gas stations. This process also affects the price of gas. Sellers must ship, market, and brand their gasoline products. It’s one of the reasons why major brands can have differing prices from one another. More prominent brands have more resources that allow them to reduce costs and offer higher discounts to loyal consumers. The most significant example is how Costco offers discount gasoline pricing for their member customers.
The last thing affecting the gasoline price at the pump is the taxes in your region. Gasoline taxes account for a significant portion of the price you pay at the pump. All retailers must charge the 18.4% Federal gas tax and other state taxes and fees. In 2022, the median average of combined taxes for gasoline was averaged at 57.1 cents/gallon.
All of these pricing factors can significantly affect the price of gasoline for consumers. Many consumers shop around to offset costs and find the lowest price they can. Consumers can use several mobile apps to find the lowest price in their geographic region. Some consumers drive further to stations they know post lower prices or sign up for loyalty or membership programs that allow them to get a discount on gasoline when they fill up at the corresponding location.
Between gas stations, prices vary depending on severaldifferent pricing strategies, including:
- Volume: Retailers selling large amounts of gasoline can often buy their fuel at the wholesale price, which may be as much as 10 to 20 cents less per gallon. They can then pass those savings on to consumers to drive brand loyalty.
- Brand: Different fuel brands offer varying gasoline blends. Depending on how their gasoline blend is created, they may be able to offset costs or drive down costs for consumers. Additionally, retailers may use branding tools like marketing or loyalty programs to boost sales of their products which also may affect their gasoline pricing.
- Competition: Retailers may also compete for gasoline sales by changing their prices. In areas with many gasoline stations, competition may drive some retailers to lower their prices to increase sales. In areas with fewer gasoline buying options, scarcity may lead to higher prices at the pump.
- Location: Most consumers buy from their local gas stations, so some retailers strategically price their gasoline for certain areas. It’s one of the reasons why you can find varying gasoline prices across the same city!
These are just a few of the factors that affect gasoline prices. There are more, including seasonal travel, weather patterns, and other factors. For consumers looking to save money on fuel costs, it can be a lot to navigate, which is why it’s important to understand how gasoline is priced and distributed. But the best way to control fueling costs is to sign up for a fleet fueling program. The program we offer can help lower the cost of keeping your fleet fueled and increase productivity. Call us today to learn how we can help you lower your fuel bill.
