Key facts
- President Donald Trump is frustrated that gasoline prices are not decreasing as rapidly as crude oil prices.
- Trump has directed the Justice Department to investigate oil companies for potential price gouging.
- Crude oil costs represent about 51% of a gallon of gasoline's price.
- Factors beyond crude oil, including refining costs, taxes, distribution, and seasonal demand, influence gasoline prices.
- There is a time lag between crude oil price changes and their impact on retail gasoline prices.
- Oil prices have declined due to expectations of an end to the war with Iran and increased shipping through the Strait of Hormuz.
President Donald Trump has expressed frustration over the pace at which gasoline prices are falling, suggesting that oil companies are not adequately lowering pump prices in correlation with the decline in crude oil costs. Trump announced on social media that he has directed the Justice Department to investigate whether customers are being "gouged."
Experts, however, explain that the relationship between crude oil prices and retail gasoline prices is complex and not immediate. Crude oil is the primary component of gasoline, but factors such as refinery costs, taxes, distribution, and seasonal demand significantly influence the final price at the pump. There is typically a lag of weeks or longer for market changes in crude oil to be reflected in gasoline prices due to the processing and transportation involved.
According to the Energy Information Administration, oil prices accounted for about 51% of the cost of a gallon of gasoline last year, with refining, distribution, and marketing making up substantial portions as well. Seasonal factors, like the shift to more expensive summer blend fuels and increased demand during travel seasons, also play a role. For instance, AAA forecasts a high number of Americans traveling for the July Fourth holiday.
Analysts note that retailers may absorb some costs when crude prices surge, which can affect their ability to immediately pass on savings when prices fall. Rob Smith of S&P Global Energy pointed out that during a recent oil price increase, gasoline prices rose less than crude oil prices, suggesting retailers absorbed some of the cost. Bethany Williams of the American Petroleum Institute stated that gasoline prices do not move in lockstep with crude oil, especially during periods of global disruption affecting supply and refining.
Crude oil prices, specifically WTI, have fallen significantly in the past month, partly due to expectations surrounding a tentative deal with Iran and increased shipping activity through the Strait of Hormuz. Despite these declines, experts caution that it could take months for supply chains to fully return to pre-disruption levels.