The single biggest factor in the pricing of gasoline is the cost of the crude oil from which it is formulated.

In recent years, the world's appetite for gasoline and diesel fuel grew so quickly that suppliers of these fuels had a very hard time keeping up with demand. This usage growth is a key reason why prices of both crude oil and gas reached record levels in mid-2008. Then rates can be forced down due to the worsening economy and crash of globally petroleum demand. These factors help gasoline prices to drop Then improvement in world economies and the political events in the Middle East and North Africa , the source of about one third of world oil production, adds to the increases in crude oil and thus gas pricing.

There are three main grades of gasoline, formulated on octane levels: regular, midgrade, and premium. The octane level of a fuel refers to its level of resistance to combustion; a fuel with a higher octane level will be less prone to pre-ignition and detonation, which is also known as engine knocking. Premium grade is the most expensive; the price difference between grades is typically a small tiny fraction per gallon.


So Just what Are the Main Mechanisms of the Retail Price of Gasoline?
The cost to provide, transport, and sell gasoline to consumers includes:

The worth of crude oil
Refining costs and profits
Circulation and marketing costs and profits
Taxation

Retail pump prices reflect these costs, as well as the profits (and sometimes losses) of refiners, marketers, distributors and retail station owners.

What Determines the Cost of Crude Oil?
The pricetag of crude oil as a share of the retail gasoline price varies over time and among areas of the World. Crude oil prices are determined by both supply and demand factors. On the demand side of the equation, market economic growth is the biggest factor. One of the major factors on the supply side is the Organization of the Petroleum Exporting Countries (OPEC), which can sometimes exert vast impact on prices by setting an upper production limit on its members, which produced about 43% of the world’s crude oil in 2011. OPEC countries have for the most part all of the world’s spare oil production capacity, and possess about two-thirds of the world’s estimated crude oil reserves. Oil prices have often spiked in response to interruptions in the international and domestic supply of crude oil.

Taxes Add to the Price of Gas
National Federal, state, and local government taxes are the next largest part of the retail price point of gas. These can make dramatic variations throughout the world

Refinement Expenses and Profits
Refining costs and profits vary from country to country of the Modern world, partly due to the different gasoline products required in different parts of the world. The qualities of the gasoline produced be dependent on the type of crude oil that is used and the type of processing technology available at the refinery where it is produced. Gasoline prices are also affected by the cost of other ingredients that may be blended into it, such as ethanol.

Distribution, marketing, and retail dealer costs and profits make up the remainder of the retail price of gas. Most gasoline is shipped from the refinery first by pipeline to terminals near consuming areas where it may be blended with other products (such as ethanol) to meet local government and market specifications, and is then delivered by tanker truck to particular gasoline stations.

Some retail outlets are owned and handled by refiners, while others are independent businesses that purchase gasoline from refiners and marketers for resale to the public. The rates on the pump includes the retailer’s cost to purchase the finished gasoline and the costs of operating the service station. It also displays local market conditions and specifics, such as the desirability of the location and the marketing strategy of the owner.

The cost of doing business by individual dealers can vary greatly depending on where the dealer is located. These costs include wages and salaries, benefits, equipment, lease/rent, insurance, overhead, and state and local fees. Even retail place next to each other can have different traffic patterns, rents, and sources of supply that affect their prices. The figures and location of local competitors can also affect prices.