What's In the Price of a Gallon of Gas?

According to AAA, the national average for the price of a gallon of gasoline in the U.S. was $4.55 on May 7, 2026, up 25 cents for the second week in a row. Tensions in the Middle East and the closure of the Straits of Hormuz continue to drive prices up. Pump prices are now $1.40 higher than they were a year ago and at their highest level since 2022, when a combination of a supply shock from Russia's invasion of Ukraine and a demand surge in the form revenge travel among Americans caused gasoline prices to briefly hit $5 a gallon during peak driving season.

The chart below compares gas prices over the past few years. While we're still a little way yet from the $5.00 a gallon milestone, prices were also higher coming into 2022 at $3.28 a gallon. So, by June of that year when prices hit $5 a gallon, the cost of gasoline had risen by 53%. Coming into 2026 gas prices were substantially lower at $2.81 a gallon. That means the cost of gasoline has risen over 60% YTD, even before we get into the peak driving season (June-August). Yikes!

Source: AAA. As of May 7, 2026.

So, what contributes to gas prices? The Naked Capitalism blog had good piece by energy economist Robert Harris that breaks down the components of gas prices and their drivers. As shown below, just over half of the cost of a gallon of gas/diesel is driven by the price of crude oil, which can fluctuate substantially. Oil is a global commodity, so when prices rise in one place, they rise everywhere--even if the U.S. produces most its own oil today. The rest of the costs (refining, marketing, and taxes) are more stable. 

From Harris: "Because the price of crude oil is the largest element, most of the price at the pump is derived from the global oil market. Usually, big swings in crude prices come mainly from shifts in global demand...But what is happening [today] with the war in Iran is one of the exceptions: a classic supply shock. Severe disruptions to shipping through the Strait of Hormuz and attacks on Middle East oil infrastructure have taken millions of barrels a day off the global market..."

Since most people can’t quickly reduce how much they drive or how much gas they use when prices change, gasoline demand doesn’t change much in the short run. That means a jump in crude costs tends to result in people paying more rather than driving less...

Source: Robert Harris, The Conversation CC-BY-ND, and eia.gov.

Refining crude into gasoline at industrial scale is another cost. As Harris notes, the U.S. doesn’t have a single gasoline market. But "roughly a quarter of U.S. gasoline is a cleaner-burning blend of petroleum-derived chemicals called 'reformulated gasoline' which is required in urban areas across 17 states and the District of Columbia to reduce smog. California uses an even stricter formulation...and is also geographically isolated: No pipelines bring gasoline in from other U.S. refining regions." Which is why, along with taxes (discussed below), a gallon of gas cost $6.16 there on May 7.

"The distribution and marketing category covers the costs of everything involved in getting the gasoline from the refinery gate to your tank. Gasoline moves by pipeline, ship, rail and truck to wholesale terminals, and then by local delivery truck to service stations. At the retailer’s end, the key factors are station rent and labor, the cost to buy gasoline in bulk to be able to sell it, credit card fees of as much as 6 to 10 cents a gallon at current prices, and franchise fees paid to the national brand, such as Sunoco or ExxonMobil, for permission to put their branding on the gas station. Most gas station operators net only a few cents per gallon on fuel itself – which is why many gas stations are really convenience stores with pumps out front."

Last, but not least are taxes. The federal government charges a tax on fuel, of 18.4 cents a gallon for gasoline and 24.3 cents a gallon for diesel. States charge their own taxes, ranging from 70.9 cents a gallon for gas in California to 8.95 cents in Alaska.  

"When gas prices rise, many politicians talk about temporarily suspending their state’s gas tax... Research suggests that consumers usually get about 80% of the reduction in gas taxes. That means oil companies and fuel retailers keep about one-fifth of the tax cut for themselves rather than passing that savings to the public."

The result is that the price that drivers see at the gas station mostly reflects the global price of crude oil and that there is not much anyone can do anything about it in the short-term to medium term. And oil prices don't seem to be coming down...

Source: St. Louis Fred and Mantabye. As of May 5, 2026.