Sylvie Willis
Fuel prices have soared in recent years, with prices surging in 2021 and 2022 due to pandemic-related supply shocks and geopolitical instability in Eastern Europe, namely Russia's invasion of Ukraine. The price of crude oil, which is the primary determinant of fuel prices, has been at a seven-year high, and supply has lagged demand, leading to increased import dependence and higher costs for consumers. Seasonal changes also impact fuel prices, with refineries switching to more expensive summer-blend gasoline during the warmer months, causing prices to increase in spring and summer and decrease in fall and winter.
| Characteristics | Values |
|---|---|
| Primary reason for fuel price hike | Oil prices are traded on a speculative futures market, which means they fluctuate based on demand and supply |
| Oil prices impact | Oil prices typically represent more than half of the cost of a gallon of gasoline |
| Oil price fluctuations | Oil prices were higher than pre-pandemic levels due to supply shocks from the pandemic and Russia's invasion of Ukraine |
| Geopolitical factors | Wars in Ukraine and the Middle East, OPEC's role in reducing production, and refinery production shortages |
| Market factors | Volatile global oil prices, seasonal demand increases, and local taxes |
| Price gouging | Oil companies and refiners may be increasing prices beyond what is justified by cost factors |
| Time lag | Pump prices reflect costs incurred weeks or months earlier, making it harder to track cause and effect |
| Fuel cartel influence | OPEC and Australia's fuel cartel benefit from limiting supply to drive up prices |
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What You'll Learn
Fluctuating oil prices
The cost of oil typically accounts for more than half of the cost of a gallon of gasoline, according to the U.S. Energy Information Administration (EIA). Therefore, the recent increases in oil prices have contributed to the rise in fuel costs. Additionally, the conflict between Israel and Iran has also played a role in the fluctuating oil prices, with oil prices spiking briefly in June due to the uncertainty in the region.
The Organization of the Petroleum Exporting Countries (OPEC) has also influenced oil prices by adjusting their output. After holding back supply in 2023 and 2024, OPEC increased production in 2025, which affected oil prices. While OPEC's decisions have an impact on the market, it's important to note that oil prices are also influenced by other factors, such as global production shifts, trade uncertainty, and demand fluctuations.
Uncertainty in global energy markets and post-winter maintenance at U.S. refineries have also contributed to the uptick in fuel costs. Additionally, refinery maintenance and the summer-blend gasoline switch have been factors in the recent increase in gas prices. The EIA reported a decrease in total domestic gasoline supply and an increase in crude oil inventories, which can impact gas prices.
While there have been efforts to stabilize fuel prices, such as the creation of a government-backed Fuel Finder scheme, the combination of various factors has led to fluctuating oil prices and, consequently, an increase in fuel costs.
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Refinery maintenance
In the context of rising fuel prices, refinery maintenance can indirectly contribute to cost increases. When refineries undergo maintenance, they may not operate at full capacity, leading to reduced fuel production and supply shortages in the market. According to the Energy Information Administration (EIA), refinery production shortages are among the key factors that can drive up gasoline prices locally. This relationship between refinery maintenance and fuel prices is particularly relevant during periods of high demand or when other factors, such as global conflicts or economic shifts, are already putting pressure on fuel prices.
The impact of refinery maintenance on fuel prices can vary depending on the scale and duration of the maintenance activities. Scheduled maintenance programs, which are typically planned in advance, can help refineries optimize their processes and minimize disruptions. However, unexpected or prolonged maintenance periods can lead to more significant supply disruptions and price fluctuations. Moreover, when refinery maintenance coincides with other factors affecting fuel prices, such as geopolitical tensions or economic sanctions, the impact on prices can be more pronounced.
In addition to direct supply disruptions, refinery maintenance can also influence fuel prices through the associated costs. Maintenance activities often involve significant investments in labor, equipment, and technology. These costs can ultimately be passed on to consumers in the form of higher fuel prices. Furthermore, refineries may also incur opportunity costs during maintenance periods, as they forgo potential revenue while their operations are interrupted. These indirect costs can further contribute to the overall expense of producing and supplying fuel, ultimately influencing the prices that consumers pay at the pump.
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Summer-blend gasoline
To achieve lower volatility, summer gasoline contains fewer evaporative "ingredients" or "light ends," which are typically some of the more affordable components of gasoline. Instead, pricier additives are used, which increases the cost of producing summer-blend gasoline. This is one of the reasons why gasoline prices tend to increase during the summer months. The transition to summer-blend gasoline typically occurs over several spring months, with federally mandated dates for refiners and terminals set from May 1 to September 15, and for gasoline retailers from June 1 to September 15.
The process of producing summer-blend gasoline can also be more time-consuming and costly for refiners. They may need to blend winter gasoline with butane, a relatively inexpensive additive with a high Reid Vapor Pressure (RVP) that helps the gasoline ignite in cold temperatures. However, in the summer, high-RVP gasoline can contribute to increased emissions and air pollution. To comply with federal regulations, refiners must reduce the amount of butane and use more expensive additives, which further increases the cost of production.
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Global production shifts
Global fuel prices have been impacted by a combination of factors, including geopolitical tensions, supply and demand dynamics, and production shifts.
One significant factor contributing to the rise in fuel prices is the increase in global production costs. In the wake of the COVID-19 pandemic and the Russia-Ukraine conflict, energy markets experienced heightened uncertainty. The Organization of the Petroleum Exporting Countries (OPEC), which had previously restricted supply in 2023 and 2024, began boosting oil production in 2025. This shift in output levels influenced the availability and pricing of oil on a global scale.
Additionally, technological advancements have played a role in production shifts. While these advancements have made US production more efficient, with a notable increase in the number of wells completed per location, producers are cautious about oversupplying the market during periods of unstable prices. This cautious approach to supply contributes to the upward pressure on fuel prices.
The US, as the top oil producer globally, has witnessed a slowdown in growth. According to the US Energy Information Administration (EIA), domestic oil production may have peaked temporarily due to lower prices and tighter margins. This stagnation in US output further exacerbates the challenges in meeting global oil demands, leading to potential price hikes.
The complex interplay of these factors—geopolitical tensions, supply chain disruptions, and production adjustments—has collectively driven up the cost of fuel worldwide. The impact of these factors is expected to continue influencing fuel prices until a stable equilibrium is reached in the energy markets.
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Middle East tensions
Tensions in the Middle East have historically been a precursor to spikes in oil prices, which in turn affect fuel prices. For instance, in June 2025, Middle East tensions caused the average cost of petrol in the UK to rise by 2 pence. This was partly due to the Israeli attack on Tehran, Iran, which caused oil prices to jump by more than 10%.
The conflict in the Middle East has global implications for the oil industry. The Strait of Hormuz, for example, is vital to the global supply chain of oil. If this strait were to be closed, the price of a barrel of oil could skyrocket to $120 (£88.63). This would cause petrol and diesel prices to soar, with drivers potentially spending more than £2 for a litre of fuel.
In June 2025, the price of oil rose to $74.40 (£54.84) due to the Israeli-Iran conflict, making it the most expensive day for oil since tariff announcements were made in April of that year. This caused petrol drivers in the UK to pay 132.13 pence per litre, while diesel cost around 6 pence more at £1.38.
The Middle East is a crucial region for the global oil market, and any tensions or conflicts in the area can disrupt the supply of oil, leading to fluctuations in oil prices. These price changes then have a knock-on effect on fuel prices, impacting consumers worldwide.
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Frequently asked questions
Fuel prices have been impacted by a number of factors, including:
- Refinery maintenance
- The switch to summer-blend gasoline
- Fluctuating oil prices
- Post-winter maintenance at U.S. refineries
- Uncertainty in global energy markets
- Tensions in the Middle East
The cost of oil typically represents more than half of the cost of a gallon of gasoline. Therefore, when oil prices rise, so do fuel prices. For example, in the immediate aftermath of the Israeli attack on Tehran, Iran, oil prices jumped by more than 10%.
In addition to crude oil prices, fuel prices can be influenced by refinery production shortages, blending issues, and local spot shortages. Additionally, fuel prices can be impacted by the policies and output of oil-producing countries, such as those in the Organization of the Petroleum Exporting Countries (OPEC).
