Why Are Gas Prices So High?

Elevated oil prices are keeping gas prices higher than they were before the pandemic.

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Updated · 7 min read
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Written by Taryn Phaneuf
Lead Writer
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Edited by Rick VanderKnyff
Senior Assigning Editor
Fact Checked

Updated on Dec. 5.

The average price of regular gas in the U.S. is $3.032 per gallon, according to AAA. Previous average prices:

  • Week ago: $3.065

  • Month ago: $3.102

  • Year ago: $3.229

Gas prices surged in 2021 and 2022 amid economic disruptions caused by the pandemic and Russia’s invasion of Ukraine — and they’ve never been the same. Today, gas prices are 17% higher than they were five years ago.

What’s keeping gas prices so high? Seasonal factors, supply-chain disruptions and gas tax hikes can play a role. But elevated oil prices are the main culprit.

The cost of oil typically represents more than half of the cost of a gallon of gasoline, according to data from the U.S. Energy Information Administration (EIA). So, a major reason gas prices are so high is that oil prices are still higher, on average, than they were before the pandemic and Russia’s invasion of Ukraine. That’s based on the price of West Texas Intermediate crude, which is used as the benchmark for oil prices in North America.

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Keep in mind that gas prices at the pump rarely reflect that day’s market conditions. Instead, they represent costs incurred weeks, even months before. That lag makes prices slower to rise and fall than news headlines might suggest. And while spot shortages, refinery production shortages or blending issues can drive up gas prices locally, big nationwide swings in gas prices are almost always due to the price of crude oil.

Yes, gas prices have gone up

The average per-gallon price of regular gas was $2.601 in 2019, according to EIA data. Then, following Russia’s invasion of Ukraine, the national average peaked at $5.016 per gallon on June 14, 2022, according to AAA. Since then, gas prices have retreated, but they haven’t returned to pre-pandemic levels.

But they're dropping right now. Here's why

Gas prices have been dropping steadily this fall, and that trend should continue through the winter. Soon, experts expect the national average to fall below $3 per gallon for the first time since May 2021. It’s already below $3 in 32 states.

Here’s how gas prices compare today:

  • The average regular gas price in the U.S. as of Dec. 5 is $3.032 per gallon, according to AAA, which tracks gas prices. 

  • The price has fallen another 7 cents in the past month, down from $3.102.

  • The price a year ago was $3.229.

At the moment, these are short-term trends happening within the larger picture of elevated gas prices. But experts think they could continue into 2025.

“Gasoline prices are likely to be a gift to the next president, staying much lower than in previous years when COVID and Russia’s war on Ukraine caused a surge that’s unlikely to repeat,” Patrick De Haan, head of petroleum analysis at GasBuddy, said in a Nov. 4 report.

So, what’s going on? Again, oil prices are a major factor. While oil prices are still higher than they were before the pandemic, they’re trending down. WTI crude prices are down about 17% since July and about 40% since their peak in 2022.

Prices also are going down because of seasonal trends. During the cooler months, consumer demand is lower and the blend of gasoline is cheaper to make. That will help hold down prices until spring.

🤓Nerdy Tip

Between May 1 and Sept. 15, gas refineries switch from winter-blend to summer-blend gasoline, which is more expensive to make. That's one reason gas prices tend to increase in the spring and summer and decrease in the fall and winter. Summer-blend gasoline is formulated to limit emissions during the warmer months when gas can evaporate more easily.

Average gas price per state

The average gas price per state varies widely. A gallon of regular fuel costs about $2.04 more in the state with the highest average price of gas (Hawaii) than in the state with the lowest average (Oklahoma).

How are gas prices determined?

Gas prices are determined by a complex set of factors that are at work long before the gas gets to your local station. According to the U.S. Department of Energy, those factors include:

  • The cost of raw crude oil, which fluctuates based on international supply and demand.

  • The cost to refine crude oil into gasoline, which rises during warmer months.

  • Taxes, which vary state-to-state.

Learn more about each of these factors below.

Crude oil prices depend on global supply and demand dynamics. Prices might become more volatile when geopolitical events or severe weather impact — or threaten to impact — the oil supply chain.

Barring those unexpected events, oil prices go up or down based on global demand for oil, as well as production decisions made in countries that export crude.

The U.S. is the top oil-producing country in the world, giving it some sway in the global market. But it is far outweighed by the Organization of Petroleum Exporting Countries, which makes production decisions for all its 12 members. Together, OPEC members produce the most oil and hold the largest share of oil reserves. With that level of control on oil supplies, OPEC has ample power to fluctuate oil prices by controlling the amount of oil flowing into the market.

The crude oil used to produce gas in the U.S. is a mix of imported and domestic. The primary sources of imported crude oil in the U.S. are from Canada, Mexico, Saudi Arabia, Iraq and Colombia. Russia was on that list until March 2022, before the war in Ukraine.

Crude oil must be refined to produce fuel that can be sold to consumers. This conversion is done in petroleum refineries. The cost of refining changes throughout the year and varies by region. That cost also depends on the type of crude oil used; the ingredients blended into the fuel; the formulation that must be used in each region to meet air quality standards; and the processing technology used at each refinery.

There are four types of fuel available at the pump that will differ in price. The three non-diesel types of gasoline — regular, midgrade and premium — are categorized by octane rating, a measure of fuel stability (the pressure at which a fuel will combust in an engine).

  • Regular: The least expensive.

  • Midgrade or super: More expensive than regular but cheaper than premium and diesel.

  • Premium or super premium: Most expensive non-diesel gasoline.

The retail price of gas is also determined by federal, state and local taxes. The federal tax on gasoline is 18.4 cents per gallon of gasoline and 24.4 cents per gallon of diesel.

States also have tax rates. Total state taxes and fees on gas in July 2024 averaged 32.6 cents per gallon, according to a NerdWallet analysis of U.S. Energy Information Administration data.

State tax rates vary widely. California’s rate (69.8 cents per gallon) and Illinois’s rate (67.1 cents) are highest, followed by Pennsylvania (58.7 cents). Alaska has the lowest state tax (9 cents per gallon), followed by Mississippi (18.4 cents) and Hawaii (18.5 cents).

The cost and profits of getting fuel to consumers also affect the price of gas. Once crude oil is refined and becomes gasoline, it is shipped via pipeline to terminals where it can be blended to meet local standards. From terminals, it is delivered via tanker truck to retail gas stations where you buy your fuel. The marketing and individual retailer costs — by chains or independent stations — will be further passed on to the consumer. Rent, traffic patterns, wages, equipment, insurance, local taxes and operational fees are also factors that will affect the price retailers will charge for gas.

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Why are California gas prices so high?

California tends to have the highest gas prices in the country because of the state’s environmental regulations, taxes and unique self-reliance on refining its own gasoline.

Did you know that the gasoline sold in California is different from gasoline sold anywhere else in the United States? Since the ‘90s, California has mandated that any gasoline sold in the Golden State be produced according to strict guidelines that reduce the gasoline’s overall emissions. As you might expect, California’s cleaner fuel blend is more expensive than the gasoline used by the rest of the nation.

Because of these regulations, more than 90% of gasoline used in California is refined in the state, according to the California Energy Commission. So, if any of the state’s refineries experience unplanned outages or disruptions, those gas prices climb even higher, since the state can’t boost its gasoline supply by importing dirtier fuel that wasn’t refined according to its regulations.

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Also, gas prices are high in California because there’s just less gasoline being refined in the state. In late 2022, California ​​mandated that all cars, trucks and SUVs sold in the state be zero-emission vehicles by 2035. Because of that, California’s refining industries are beginning to transition away from fossil fuels, according to The Hoover Institution, a public policy think tank at Stanford University.

Finally, taxes contribute to the state’s gas prices. Drivers in California pay 69.8 cents per gallon in state taxes — the highest state tax rate in the country.