What Decides the Cost of Gas at the Pumps?

What Decides the Cost of Gas at the Pumps?

As a petroleum service company, we are often asked about fluctuations in gas prices. It is something we do keep an eye on as it does have an impact on everyone that is part of the petroleum industry. When there is a higher demand for gas that pushes up prices, that is when our customers will find themselves most in need of a petroleum service company. In recent months, fuel prices in Texas have risen significantly, and those increases look set to continue. Towards the end of January, prices in Texas gas stations are charging an average of 15.9 cents per gallon more than a month ago and 89.5 cents more per gallon than a year ago!

So, the question remains, who decides what you pay at the pumps when you visit a gas station? Let’s take a look at the four deciding factors:

  • Price of Crude Oil
  • Refining Costs
  • Taxes
  • Distribution & Marketing

Crude Oil Prices

The most significant factor in determining gas prices at the pump is the cost of the raw materials needed to produce gasoline - crude oil—the price of oil accounts for about 70% of the price per gallon at the gas station. When oil prices fluctuate, and they do this frequently, that’s when you see the pricing change on the forecourt. The cost of crude oil fluctuates based on factors including supply and demand, inventories, change in seasons, financial market, and global situations.

Currently, diesel prices across the United States have reached their highest since 2014. This has been driving up costs in many industries, including trucking, farming, and even heating homes in some parts of the country. Prices seem to have mainly surged based on refiners entering a heavy maintenance season, while stockpiles are at their lowest in a decade. There has also been a rising demand for jet fuel as travel opens back up worldwide following shutdowns due to the pandemic. This has meant refiners having to produce more jet fuel and cut back on diesel production. All of this contributes to rising costs and is a positive sign for the broader oil market. That’s great news for a petroleum service company like ours!

Refining Costs

The costs of actually refining crude oil to produce gasoline and other products are also a reasonably significant contributor to the prices you see at the pump. These costs will vary both regionally and seasonally across the country. Some states must use specific formulations to reduce air pollution in accordance with local regulations. Gas prices can also be influenced by the cost of other ingredients that are blended into gasoline, such as ethanol and detergents. Demand also has an impact. Prices tend to increase in the Summer months when the demand is higher due to increased travel.


Something that has a more or less equal contribution to gas prices as the refining costs is the Federal, state, and local government taxes. The federal gasoline tax is 18.40 cents per gallon, including the excise tax and leaking underground storage tank fees. State and local taxes will vary, but as of Jan 1, 2021, the average total for local and state fees on gas was 30.06 cents on the gallon. This includes fees such as sales tax, which can considerably impact pricing. On a related note, it is also essential to maintain your fuel dispensers, tanks, and other equipment in line with EPA guidance to avoid fines. Choose a reputable petroleum service company like PumpTex to take care of this for you.

Distribution & Marketing

Finally, distribution and marketing costs, retail costs, and profits are also included in the retail price you pay at the pump. Since some gas stations are part of chains and may be owned by a refinery, prices will differ between them and independently owned gas stations. The location of the gas station will also affect fuel prices based on the living costs of the local area since location rent, wages, equipment costs, and even the price of maintenance from a petroleum service company can vary depending on the area.

We Keep You Pumping!


PumpTex, Inc. was founded in 1997 in the back of a garage with the dream of bringing a new level of customer service to the retail petroleum service industry. Over the years, we have grown to become a valuable resource to our customers. Many consider us to be the first responders of the retail petroleum service industry!


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