Conor here: The author of the following piece focuses on four things: the cost of pollution, refining, marketing and distribution, and taxes. I’m no economist, but you seem to be missing one key ingredient: profit. For some insight on that front we can turn to a March 10 piece by Hal Singer in the Washington Monthly:
We don’t have to guess. We can look at the receipts from the energy saving problem.
When Russia invaded Ukraine in February 2022, crude oil prices rose by about 71 cents per liter. But gasoline prices have jumped to about $1.50 per gallon. That’s a 79-cent gap—pure profit for refiners and gas stations, pocketed under the fog of war.
California’s Division of Petroleum Market Oversight (DPMO) confirmed these findings in an October 2025 report: All of the price increases they studied—2019, 2022, 2023—also created an increase in profits. Retail prices have increased more than can be explained by the increase in the cost of crude oil. And when wholesale prices finally came down, gas stations kept their prices high, and until their deaths.
More:
…The measure of a refiner’s profit is called the crack spread: the difference between the cost of crude oil and the prices at which refined products such as gasoline and diesel are sold. A common benchmark, the “3-2-1 spread,” takes three barrels of crude to produce two barrels of gasoline and one of diesel.
That spread jumped from $28.55 on February 27 to $44.33 on March 5. It hasn’t reached the $60 peak of the Russia-Ukraine crisis in May 2022, but the spike is still a big windfall. Refiners are charging gas stations much more than their costs have risen.
Exxon recently posted net income of $4.2 billion and Chevron posted a profit of $2.2 billion, both above Wall Street forecasts for the first quarter. They would probably have been much higher unless the results were hurt by the currency trade going south because oil prices rose before that oil was delivered. The whole year view is the best. From CNN Business:
Analysts expect both companies’ profits to increase by the end of the year. Ahead of the company’s earnings reports early Friday, analysts’ consensus estimate was for ExxonMobil’s second-quarter earnings to more than double from a year ago and for full-year earnings to rise 46%. Chevron’s profits are expected to more than triple in the current quarter and increase 56% year over year.
That would give the companies their best year since 2022, when the war in Ukraine drove the average US gasoline price to $5.02 a gallon.
And now the official line.
By Robert I. Harris, Assistant Professor of Economics, Georgia Institute of Technology. Originally published on The Conversation.
The US Energy Information Administration expects retail gasoline prices to reach US$4.30 a liter in April 2026 – the highest monthly average of the year. The political reaction was typical. Georgia has suspended a state gas tax, other states are weighing their own tax holidays, and the White House has issued a temporary waiver of a law known as the Jones Act in hopes of moving more domestic fuel to East Coast ports.
As an energy economist, I am often asked about what affects fuel prices and what different policies can do to affect them.
The price of a gallon of retail gas is the sum of four factors: the cost of crude oil, refining, distribution and marketing, and taxes.
In national statistics as of January 2026, crude oil accounted for about 51% of the pump price, refining about 20%, distribution and marketing about 11% and taxes about 18%. That mix changes with conditions: When crude oil prices rise, that can drive more than 60 percent of the total; when the price goes down, taxes and fees are the biggest shares of the cost.
Crude Oil is a Major Ingredient
Because the price of crude oil is the largest commodity, most of the price at the pump is based on the world oil market.
Often, large swings in crude prices stem primarily from changes in global demand and expectations — not supply disruptions, according to a widely cited 2009 study by economist Lutz Kilian.
But what happened in early 2026 with the Iran war is something different: a classic shock. Major disruptions in shipping through the Strait of Hormuz and attacks on oil infrastructure in the Middle East have taken millions of barrels a day off the world market.
Most drivers usually cannot quickly reduce how much they drive or how much gas they use when prices rise, so the demand for gasoline does not change much in the short term. That means that skipping out on dirty fees often results in people paying more than driving less.
Refining, Regulations and the California Puzzle
Refining turns crude into fuel on an industrial scale. However, the US does not have a single fuel market. About a quarter of US gasoline is a hot mix of petroleum-derived chemicals called “recycled gasoline,” which is required in urban areas in all 17 states and the District of Columbia to reduce smog.
California uses an even more stringent formulation made by out-of-state refineries. California is also geographically isolated: There are no pipelines that import gasoline from other US refining regions.
California’s gasoline prices have long been above the national average, explained in part by the state’s high taxes and strict environmental regulations. But since a refinery fire in Torrance, California, in 2015 reduced production capacity, state prices have been about 20 to 30 cents a gallon higher than those factors would indicate.
The energy economist and the University of California, Berkeley, professor Severin Borenstein called this a “mysterious fuel surcharge” and it proves that there is not as much competition between refineries or gas stations in California as in other states. California’s Division of Petroleum Market Oversight says the surcharge cost the state’s drivers nearly $59 billion from 2015 to 2024. It is not clear who gets the money, but it could be the gas stations themselves or the refineries, through complex contracts with the gas stations.
Putting Gas In Your Car
The distribution and marketing section covers the cost of everything involved in getting the fuel from the refinery gate to your tank.
Fuel travels by pipeline, ship, rail and truck to wholesale terminals, then by local delivery truck to service stations.
On the dealer’s end, the key factors are station rent and labor, the cost of buying gas in bulk so you can sell it, credit card fees of about 6 to 10 cents a gallon at current rates, and corporate fees paid by a national brand, such as Sunoco or ExxonMobil, to get permission to put up a garage station logo.
Most gas station attendants only earn a few cents per gallon on the gas itself – that’s why most gas stations are convenience stores and pumps out front. Borenstein and his colleagues also wrote that gasoline prices rise faster when retail costs rise but fall more slowly when retail costs fall.
Gas Tax Holidays Question
The federal government levies a tax on gasoline, 18.4 cents a liter for gasoline and 24.3 cents for diesel. States charge their own taxes, from 70.9 cents a gallon of gas in California to 8.95 cents in Alaska.
When the price of gas goes up, many politicians start talking about temporarily suspending their state’s gas tax. That’s driving prices down, but not as much as politicians — or consumers — might hope. A study of past gas tax holidays found that consumers received about 79% of the gas tax reduction. That means the oil companies and gas stations keep one-fifth of the reduced tax for themselves rather than passing those savings on to the public.
Energy tax holidays also reduce funding for what the taxes are designed to pay for, usually roads and bridges. That pushes the cost of road and bridge maintenance down to future drivers and ordinary taxpayers.
There’s another problem, too: Fuel taxes should charge drivers for some of the costs their driving imposes on everyone else — carbon emissions, local air pollution, congestion and crashes. But Borenstein found that US gasoline tax rates are still far below the actual cost to society. Removing the tax from drivers effectively raises costs for everyone.
Jones’s Act: A Small Additive Number
The 1920 Jones Act is a federal law that requires cargo moving between US ports to travel on vessels built and registered in the US, owned by US citizens, and staffed primarily by US citizens and permanent residents. Of the 7,500 oil tankers in the world, only 54 meet this requirement. Only 43 of these can transport refined oil as fuel.
Thus, despite the large refining capacity on the Gulf Coast, some US gasoline is shipped overseas as the Northeast imports gasoline, partly reflecting the higher cost of transporting gasoline between US ports.
Economists Ryan Kellogg and Rich Sweeney estimate that the law raises East Coast gasoline prices by about a cent and a half per gallon on average, costing drivers about $770 million a year. Because of the war’s effect on fuel prices, the Trump administration has temporarily suspended the requirements of the Jones Act – an action often taken when hurricanes knock out refineries and pipelines on the Gulf Coast.
What Moves the Number
The result of all these factors is that the price drivers see at the pump largely reflects the global crude price, as well as a host of domestic costs, only some of which are inefficient.
Tax holidays offer a partial, temporary discount. Jones Act waivers reduce pennies, although permanent repeal could result in more significant changes, such as reducing rail and truck transportation of all goods, which could reduce costs, emissions and infrastructure damage associated with moving goods. Harmonizing fuel mixes across regions and seasons may lower prices somewhat, but may come at the cost of increased emissions.
Ultimately, the best protection against an oil price shock is a very efficient gas-guzzling car, or one that burns no gas at all. For now, the best I can offer as an economist is clarity about what $4.30 actually costs.
