Who's responsible for setting high gas prices

Oil prices have moderated a bit since Russia's invasion of Ukraine, but gasoline prices have remained at near-record levels. For those who wonder why, it's because there's money to be made. Those profits though may not be going where you imagine.

With Houston gas prices slightly higher than the state average $3.91 a gallon, a fill-up definitely takes a bite out of driver budgets. When asked who's to blame, some offered, "I feel oil companies have reserves, and I feel they're holding it for themselves," and, "I'm guessing something with the government."

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Actually, it's probably the gas station that sells it. Oil companies typically own few if any service stations. Of the nation's 145,000 gas stations, most are owned by owner-operators that have a contract to sell branded fuel at whatever price they choose. 

Oil analysts offer this simplified explanation: On average, gas stations need a new load of gasoline every three and a half days for which they pay a wholesale 'rack rate.' It's delivered to the station, available to customers at a 'retail rate', and the gross margin between the two is generally $0.30 to $0.35 a gallon, from which operating costs and profits come. When oil prices fall from their higher levels, but gas prices remain the same, industry analysts say those gross margins can jump to $0.60 to $0.65 a gallon. 

"When prices are falling, the retailer knows that the consumer is going to continue to show up, and they're reluctant to lower prices because this is the time that they can make money," says Lipow Oil Associates president Andrew Lipow.


Operators with gas stations in the Houston-area did not respond to a question about gas pricing. Neither did the National Association of Convenience Stores trade-organization. 

In a recent blog-post though NACS acknowledged there's an opportunity for profit-taking saying, "Retailers may hold their gas prices despite a lower-cost delivery to make up for the margin they lost during the price increase."

"The service station operator is trying to make a profit," says Lipow. "He's the person deciding what the retail price is that you see at the corner."

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Oil started the week with a close of $112 a barrel, up more than $7 from its previous close. Global volatility, that's driving those prices, is likely to remain for a while, as are the high gas prices that come with it.