Now that a cease-fire is in place between the U.S. and Iran, consumers are hoping it will translate into lower gas prices at the pump. While it may seem like prices rose overnight, that doesn’t mean gas prices will rebound just as quickly.
Gas Pricing 101
Understanding how gas prices are calculated is tricky. Beyond supply and demand influence, factors such as the supply chain, politics, and geography also affect the cost of a gallon of gas.
According to a recent article from Automotive News, gas is derived from crude oil, which is “heated and vaporized, and different components condense into liquid in a distillation tower.” Gasoline is one of the byproducts of this process and is then further refined, “treated, blended, and transported to distribution terminals.”
Automotive News discusses what drives oil prices beyond consumer demand, noting that “Geopolitical events and weather can impact the global supply.” The conflict in Iran is causing market instability and the closure of the Strait of Hormuz, through which “20% of global oil and liquefied natural gas” flows, resulting in a sharp price increase.
Location, Location, Location
Where you live also influences the price you pay for fuel. Automotive News notes that only half of the price is based on crude oil costs; the other half is a mixture of where the oil is refined, taxes, and the cost of doing business, including retail and marketing. Ever wonder why Californians pay so much more for gas? Because California has stricter environmental regulations, requiring refiners to change how they process oil. This has “prompted oil companies to idle their refineries over the last couple of years.”
Time of Year
It’s springtime, and that means more travelers are on the road in the U.S., on spring break vacations across the country. A recent KBB article states that the spring break season drives up gas consumption and prices. According to the U.S. Energy Information Administration, the average price of regular gas this time last year was $3.09 per gallon. According to AAA, today’s national average for a gallon of regular gas is $4.17. Usually, the increase is not as high as what we’re seeing. Then again, we were not involved in a war in the Middle East last year.
Automotive News reports that, as summer approaches, the government “mandates” a switch to a “summer blend” of gasoline that “evaporates less in hot weather.” And, as you probably guessed, this adds to the cost of gas. The Environmental Protection Agency (EPA) is temporarily waiving the price increase due to the war.
When will prices drop?
Even with the ceasefire in place, and assuming it continues, fuel costs won’t come down for a while. Crude oil processing runs on a schedule, and disruptions are still possible. According to Automotive News, it took 10 months for prices to drop after Russia invaded Ukraine in 2022.
While we wait for things to settle down into some sort of normalcy, there are things you can do to ensure you get the most from every gallon you pump. Check out KBB.com/mpg for more information about fuel economy and gas prices.
