Regan Brown
Fuel prices are a highly discussed topic, with prices fluctuating over time due to various factors. In the United States, gasoline prices are released weekly, and several factors, including seasonal changes and global conflicts, can influence the price consumers pay at the pump. This paragraph aims to delve into the annual fluctuations in fuel prices and explore the factors contributing to these changes.
| Characteristics | Values |
|---|---|
| Average price of gasoline in May 2025 | 12% decrease compared to the previous year |
| Average price of gasoline in April 2025 | 11.8% decrease compared to the previous year |
| Average regular gas price in the U.S. in July 2025 | $3.171 per gallon |
| Average regular gas price in the U.S. in December 2024 | Nearly $3 per gallon |
| Average regular gas price in the U.S. in May 2021 | $2.89 per gallon |
| Possible factors causing an increase in fuel prices | Conflict between Israel and Iran, fluctuations in oil commodity prices |
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What You'll Learn
Gasoline inflation
Historically, gasoline prices have fluctuated due to various factors, including global demand, extraction costs, and geopolitical events. For example, there were gasoline price spikes in 1974 and 1980 due to the OPEC Oil Embargo and the Iran-Iraq War, respectively. The economic recession in 2009 caused a price crash after a peak in 2008, and oil prices peaked again in 2012 due to high global demand and costly extraction methods. More recently, oil prices dropped in 2020 due to decreased demand during the COVID-19 pandemic but rebounded in 2021.
In the US, the BLS data shows that gasoline prices fell by 12% in the 12 months ending in May 2025, compared to an 11.8% annual decrease in April. However, it's important to note that energy prices, including gasoline, are typically excluded when calculating core inflation rates due to their volatility.
To put gasoline prices into context and understand their impact on consumers, it is essential to compare them to other energy sources and consider federal and state taxes included in the retail price. Additionally, the type of gasoline, such as regular leaded or unleaded, and vehicle type, such as light-duty vehicles, can also influence the overall fuel price and inflationary trends.
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Fuel tax
In some countries, such as the United States, fuel taxes are levied at both the federal and state levels. The federal fuel tax rate is typically fixed and applies to all states, while state fuel tax rates can vary, resulting in different fuel prices across different states.
One example of a fuel tax is the Fuel Tax Credit offered by the Internal Revenue Service (IRS) in the United States. This credit is available to businesses for fuel used in specific work-related activities. The credit is designed to offset the cost of fuel taxes for certain nontaxable uses of gasoline, aviation gasoline, undyed diesel, and undyed kerosene. These nontaxable uses typically refer to purposes where fuel is not used for regular driving on public roads, such as off-highway business use on private property, farms, or construction sites. To claim the Fuel Tax Credit, businesses must complete Form 4136 and provide detailed information about the vehicles, equipment, and fuel purchases. However, it is important to carefully determine eligibility before claiming the credit to avoid incorrect claims and potential penalties.
Changes in fuel tax rates can have a direct impact on fuel prices. For example, a fuel tax increase will result in higher fuel prices at the pump, while a fuel tax decrease can lead to lower prices. Fuel taxes can also be used as a tool to influence consumer behaviour and promote the use of more environmentally friendly fuels. By adjusting fuel tax rates for different types of fuels, governments can encourage the adoption of alternative fuels that have lower emissions or are considered more sustainable.
Overall, fuel tax plays a significant role in the pricing of fuel and can be subject to fluctuations over time. It is important for consumers and businesses to stay informed about changes in fuel tax rates to anticipate and manage the impact on their fuel costs. Additionally, understanding fuel tax policies can help taxpayers identify and utilize any available credits or incentives related to fuel expenses.
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Oil prices
During the pandemic, the Organization of the Petroleum Exporting Countries and its allies (OPEC+) made efforts to stabilize oil prices by cutting production. However, as the world started recovering from the pandemic, OPEC+ gradually increased production to meet the rising demand. This transition period saw a unique dynamic where, despite the increase in demand, oil inventories continued to build, preventing a sharp rise in oil prices.
For instance, in May 2025, the Brent crude oil spot price averaged $64 per barrel, a $4 decrease from the previous month and a $17 drop from the same month in the previous year. OPEC+ production increases during this period contributed to this downward trend in oil prices. The expectation is that Brent crude oil prices will average $66/b in 2025 and $59/b in 2026, indicating a continued but slower decline.
Looking at OPEC+'s individual members, they are expected to increase crude oil production by 0.3 million barrels per day (b/d) in 2025, compared to a decrease of 1.4 million b/d in 2024. This will be followed by a further increase of 0.5 million b/d in 2026. However, the overall growth in global liquid fuels production in 2025 will be driven by countries outside of OPEC+, with a predicted increase of 1.1 million b/d.
In the second half of 2025, a slowdown in global oil production growth is anticipated, particularly with flat crude oil production in the US. Simultaneously, oil consumption growth is expected to rise, leading to a moderation in inventory builds. This dynamic between production and consumption will play a crucial role in determining oil price movements in the coming months.
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Gas prices
Gasoline prices have historically been volatile, with price spikes occurring in 1974 and 1980 due to the OPEC Oil Embargo and the Iran-Iraq War, respectively. While the US Labor Department's Bureau of Labor Statistics (BLS) reported an 11.8% annual decrease in gasoline prices for April 2025, the conflict between Israel and Iran has caused fluctuations in oil commodity prices. A full-scale conflict could potentially block the Strait of Hormuz, an oil corridor for about 20% of global crude oil, leading to increased consumer gas prices.
Seasonality also plays a role in gas pricing. Between May 1 and September 15, refineries switch from winter-blend to summer-blend gasoline, which is more expensive to produce due to emissions limitations during warmer months. Consequently, gas prices tend to increase in spring and summer and decrease in fall and winter. For example, in December 2024, the national average was nearly $3 per gallon, according to AAA, while GasBuddy reported an average of $2.89. As of July 2, 2025, the average regular gas price in the US had risen to $3.171 per gallon.
The US Energy Information Administration (EIA) releases weekly gasoline and diesel fuel price updates. Gasoline prices are included in the Consumer Price Index's (CPI) "all items" index, which measures changes in prices paid by consumers over time and is used to calculate inflation rates. However, due to their volatility, energy prices are excluded from core inflation rate calculations.
US presidents may not directly control pump prices, but they can implement policies that encourage low fuel prices. Additionally, gasoline taxes vary across Organization for Economic Cooperation and Development (OECD) countries, impacting the retail price, which includes federal and state taxes.
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Energy index
The global fuel energy price index stood at 177.39 index points in November 2024, up from 100 in the base year 2016. This increase was largely due to higher gas demand for heating. The fuel energy index includes prices for crude oil, natural gas, coal, and propane.
The global natural gas price index surged almost 11-fold, and the global coal price index rose almost sevenfold from the summer of 2020 to the summer of 2022. This notable escalation was largely attributed to the Russia-Ukraine war, which exerted increased pressure on the global supply chain. The Russia-Ukraine conflict also played a role in the surge of global inflation rates.
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The crack spread measures the difference between the purchase price of crude oil and the selling price of finished products, such as gasoline and distillate fuel, that a refinery produces from the crude oil. Crack spreads are an indicator of the short-term profit margin of oil refineries because they compare the cost of the crude oil inputs to the wholesale or spot prices of the outputs.
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