One of the single biggest factors in the price of gasoline is the cost of the crude oil from which it is made. In recent years, the world’s appetite for gasoline and diesel fuel grew so quickly that suppliers of these fuels had a difficult time keeping up with demand. As crude oil supplies stays basically constant and demand continues to increase, the price of gasoline at the pump goes UP!
This demand growth is a key reason why prices of both crude oil and gasoline reached record levels in mid-2008. By the fall of 2008, crude oil prices began to fall due to the weakening economy and collapse of global petroleum demand, which had pushed oil prices to record levels earlier in the year.
These factors helped gasoline prices drop below $2 per gallon of regular gasoline in late 2008 and early 2009, the lowest prices in three years. The cost of crude oil as a share of the retail gasoline price varies over time and among regions of the country.
Crude oil prices are determined by both supply and demand factors. On the demand side of the equation, world 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 significant influence on prices by setting an upper production limit on its members, which produce about 40% of the world’s crude oil.