The U.S. Energy Information Administration expects nationwide retail gasoline prices to for April 2026 – the highest monthly average of the year. The political response has been familiar. 鶹 has , other states are weighing their own tax holidays, and the White House has issued a in hopes of moving more domestic fuel to East Coast ports.
As an , I am often asked about what contributes to gas prices and what different policies can do to affect them.
The price of a retail gallon of gas is the sum of four things: the cost of crude oil, refining, distribution and marketing, and taxes.
In nationwide figures from January 2026, crude oil accounted for , refining roughly 20%, distribution and marketing about 11% and taxes about 18%. That mix shifts with conditions: When crude oil prices spike, that can drive more than 60% of the price; when the price drops, taxes and logistics are larger shares of the cost.
Crude Oil is the Biggest Ingredient
Because the price of crude oil is the largest element, most of the price at the pump is derived from the global oil market.
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Usually, come mainly from shifts in global demand and expectations – not from supply disruptions, according to widely cited research in 2009 by the economist Lutz Kilian.
But what is happening in early 2026 with the war in Iran is one of the exceptions: a . and attacks on Middle East oil infrastructure have taken millions of barrels a day off the global market.
Most drivers generally can’t quickly reduce how much they drive or how much gas they use when prices rise, so . That means a jump in crude costs tends to result in people paying more rather than driving less.
Refining, Regulations, and the California Puzzle
Refining turns crude into gasoline at industrial scale. The U.S. doesn’t have a single gasoline market, though. Roughly is a cleaner-burning blend of petroleum-derived chemicals called “,” which is required in urban areas across 17 states and the District of Columbia to reduce smog.
California uses an that few out-of-state refineries make. California is also geographically isolated: No pipelines bring gasoline in from other U.S. refining regions.
California’s gasoline prices have long run above the national average, explained in part by and stricter environmental rules. But since a reduced production capacity, the state’s prices have been higher than what those factors would indicate.
Energy economist and University of California, Berkeley, professor Severin Borenstein has called this the “” and attributes it to the fact that there isn’t as much competition between refineries or gas stations in California as in other states. California’s own Division of Petroleum Market Oversight says the surcharge cost the state’s drivers . It’s not exactly clear who is getting that money, but it could be , through complex contracts with gas stations.
Getting the Gas Into Your Car
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, 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 on fuel itself – which is why many gas stations are really convenience stores with pumps out front. Borenstein and some of his collaborators have also documented that when wholesale costs climb but fall slowly when wholesale costs drop.
The Question of Gas Tax Holidays
The federal government charges a tax on fuel, of and 24.3 cents a gallon for diesel. States charge their own taxes, ranging from in California to 8.95 cents in Alaska.
When gas prices rise, many politicians start talking about temporarily suspending their state’s gas tax. That does reduce prices, but not as much as politicians – or consumers – might hope. Research on past gas tax holidays has found that consumers get 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.
Gas tax holidays also reduce funding for what the , typically roads and bridges. That pushes road and bridge upkeep costs onto future drivers and general taxpayers.
There is an additional problem, too: Taxes on gasoline are supposed to charge drivers for some of the – carbon emissions, local air pollution, congestion and crashes. But Borenstein has found that U.S. fuel tax levels are already . Removing the tax on drivers effectively raises the costs for everyone else.
The Jones Act: A Small Number That Adds Up
The is a federal law that requires cargo moving between U.S. ports to travel on vessels built and registered in the U.S., owned by U.S. citizens, and crewed primarily by U.S. citizens and permanent residents. Of the world’s 7,500 oil tankers, . can transport refined fuels such as gasoline.
So, despite significant refining capacity on the Gulf Coast, some U.S. gasoline is exported overseas even as the Northeast imports fuel, in part reflecting the between U.S. ports.
Economists Ryan Kellogg and Rich Sweeney estimate that the law on average, costing drivers roughly $770 million a year. In light of the war’s effect on gas prices, the Trump administration has – an action more commonly taken when .
What Moves the Number
The result of all these factors is that the price that drivers see at the pump mostly reflects the global price of crude, plus a stack of domestic costs, only some of which are inefficient.
Tax holidays give a partial, short-lived rebate. Jones Act waivers trim pennies, though permanent repeal may cause more fundamental changes, such as , which could lower costs, emissions and infrastructure damage associated with cargo transportation. Harmonizing fuel blends across states and seasons may lower prices somewhat, but likely at the expense of increased emissions.
Ultimately, the best protection against oil price shocks is a more efficient gas-burning vehicle, or at all. In the meantime, the best I can offer as an economist is clarity about what that $4.30 actually buys.
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