What Really Drives US Gas Prices: A Breakdown of Fuel Costs

The U.S. Energy Information Administration expects nationwide retail gasoline prices to average near US$4.30 a gallon for April 2026, marking the highest monthly average of the year. This surge in pricing has triggered a series of political responses, including the suspension of the state gas tax in Georgia and a temporary waiver of the Jones Act by the White House to facilitate the movement of domestic fuel to East Coast ports.

To understand the drivers behind these prices, We see necessary to examine the four components that constitute the cost of a retail gallon of gas: the cost of crude oil, refining, distribution and marketing, and taxes. According to nationwide figures from January 2026, crude oil accounted for about 51% of the pump price, while refining represented roughly 20%, distribution and marketing about 11%, and taxes about 18%.

This distribution shifts based on market conditions. When crude oil prices spike, they can drive more than 60% of the final price. Conversely, when crude prices drop, the proportional share of costs attributed to taxes and logistics increases.

The Impact of Global Supply Shocks

Because crude oil is the largest component of the price, most pump costs are derived from the global oil market. While research from economist Lutz Kilian in 2009 suggests that big swings in crude prices usually stem from shifts in global demand and expectations rather than supply disruptions, the current environment in early 2026 is an exception.

The war in Iran has created a classic supply shock. Severe disruptions to shipping through the Strait of Hormuz and targeted attacks on Middle East oil infrastructure have removed millions of barrels a day from the global market. Because most drivers cannot quickly reduce their gasoline consumption when prices rise, gasoline demand remains relatively stable in the short run, meaning crude cost increases translate directly into higher payments for consumers.

Refining and the California Market

The U.S. Does not operate as a single gasoline market. Approximately a quarter of U.S. Gasoline consists of reformulated gasoline, a cleaner-burning blend required in the District of Columbia and urban areas across 17 states to reduce smog.

California employs an even stricter formulation that few out-of-state refineries produce. The state is also geographically isolated, with no pipelines bringing gasoline in from other U.S. Refining regions. These factors, combined with stricter environmental rules and higher state taxes, contribute to California’s prices running above the national average.

However, some of the cost is attributed to a lack of competition. Since a 2015 refinery fire in Torrance, California, reduced production capacity, prices in the state have remained about 20 to 30 cents a gallon higher than what taxes and regulations alone would suggest. Severin Borenstein, a professor at the University of California, Berkeley, and energy economist, has identified this as the mystery gasoline surcharge.

The California Division of Petroleum Market Oversight reports that this surcharge cost drivers in the state about $59 billion from 2015 to 2024. It remains unclear whether these funds are captured by refineries or gas stations through complex contracts.

Distribution, Marketing, and Retail Margins

The distribution and marketing segment covers the logistics of moving fuel from refinery gates to vehicle tanks via pipeline, ship, rail, and truck. At the retail level, costs include station rent, labor, bulk purchase costs, and franchise fees paid to national brands like ExxonMobil or Sunoco.

Credit card fees also impact the price, costing as much as 6 to 10 cents a gallon at current price levels. Most gas station operators net only a few cents per gallon on the fuel itself, which is why many facilities operate primarily as convenience stores. Data indicates that retail gas prices tend to rise quickly when wholesale costs climb but fall slowly when those costs drop.

The Efficacy of Tax Holidays

Fuel taxes vary significantly by jurisdiction. The federal government charges 18.4 cents a gallon for gasoline, and 24.3 cents for diesel. State taxes range from 8.95 cents in Alaska to 70.9 cents in California.

While politicians often propose temporary gas tax holidays to lower prices, research indicates these measures provide limited relief. Consumers typically receive about 79% of the tax reduction, while oil companies and fuel retailers retain approximately one-fifth of the savings.

these holidays reduce funding for roads and bridges, shifting upkeep costs to future taxpayers. Economists also note that fuel taxes are intended to offset the societal costs of driving, such as carbon emissions, congestion, and crashes. Borenstein has found that U.S. Fuel tax levels are already far below the true cost to society, meaning tax removals effectively increase costs for the general public.

The Jones Act and East Coast Pricing

The 1920 Jones Act requires cargo moving between U.S. Ports to be transported on vessels built, registered, and owned by U.S. Citizens, and crewed primarily by U.S. Citizens or permanent residents. This restriction severely limits the available fleet; of the world’s 7,500 oil tankers, only 54 meet these requirements, and only 43 of those can transport refined fuels like gasoline.

This law contributes to a scenario where U.S. Gasoline is exported overseas while the Northeast imports fuel due to the high cost of domestic coastal transport. Economists Ryan Kellogg and Rich Sweeney estimate that the Jones Act raises East Coast gasoline prices by an average of about a penny and a half per gallon, costing drivers roughly $770 million annually.

In response to the current war’s effect on prices, the Trump administration has temporarily suspended these requirements. Such waivers are typically reserved for emergencies, such as when hurricanes disable Gulf Coast refineries and pipelines.