How Do Gas Prices Work? Costs Responding to Rising Crude Oil Prices

Gas prices are expected to continue rising across the U.S. as the price of crude oil climbs in the wake of Russia's invasion of Ukraine, according to industry experts.

Russia is one of the world's largest oil producers, with an estimated 11 percent of all the oil produced around the world in 2020 coming from Russia. The country's war with Ukraine has raised concerns about how the fighting could impact Russian oil production and distribution.

In the U.S., a majority of the costs imposed at gas stations—about 56 percent—derives from the cost of crude oil, according to the U.S. Energy Information Administration. The refining, distribution, marketing and taxing of gas make up the rest of the costs.

When crude oil prices increase, gas prices are typically quick to follow. West Texas Intermediate, which serves as the U.S. reference point for oil prices, hit above $130 per barrel for a brief time on Monday, marking a significant increase even when compared with the costs recorded as gas prices were increasing last fall, when per barrel costs were between $80 and $90.

Gas prices crude oil
Industry experts say rising gas prices are driven by the cost of crude oil, which has increased in the wake of Russia's invasion of Ukraine. Above, gas prices over $5 a gallon are posted at a petrol station in Los Angeles on March 4. FREDERIC J. BROWN/AFP via Getty Images

The U.S. and several of its allies imposed economic sanctions on Russia, though the U.S. has thus far not taken the step of sanctioning Russian oil. President Joe Biden said shortly after Russia's invasion began that sanctions imposed on the country were aimed at impacting the Russian economy and sought to "minimize the impact on the United States and our Allies," with his administration meanwhile planning to use "every tool at our disposal to protect American families and businesses from rising prices at the gas pump."

According to Patrick De Haan, the head of petroleum analysis at GasBuddy, the sanctions that have been imposed on Russia are still having an impact on gas prices.

"Previous sanctions on Russia's banking and shipping industries are essentially putting a chokehold on Russian oil exports, which have plummeted," De Haan said during a Facebook Live event last week. "U.S. and Western countries' previous sanctions on Russia are resulting in a near chokehold on Russia's oil experts, which is why oil prices are going up, and that is why gas prices are going up."

The American Automobile Association (AAA) also linked rising gas prices to the impact Russia's war with Ukraine is having on crude oil costs.

"As the conflict between Russia and Ukraine continues, crude prices soar, leading to higher pump prices in the U.S.," AAA said in a Monday news release. While the association noted recent increases in demand and decreases in oil supply also factor into prices at the pump, it identified the cost of crude oil as the factor that plays "a leading role in pushing gas prices higher."

Last week, the International Energy Agency announced its member countries would be releasing about 60 million barrels of oil from emergency reserves, with half of that amount to be released by the U.S. However, AAA said the impact of that strategic oil release has thus far been muted.

"Despite this announcement, the impact on pricing has been limited given that the amount of oil planned for release is small in comparison to the amount that flows daily from Russia to other countries around the globe," the association added.