Gasoline prices continue to surge. Drivers saw increases of roughly 50 cents per gallon almost overnight following the outbreak of hostilities with Iran. According to AAA, the national average price of gasoline has climbed by nearly $1.00 per gallon over the past month—one of the fastest increases in decades.
It feels like a ripoff, and for many Americans, the same questions come up every time.
If the United States is the world’s largest oil producer—in fact, if we are energy independent—then why are we still at the mercy of global events? And how can prices spike instantly when the gasoline in the tank was made from cheaper oil weeks ago?
People like easy answers, such as “corporate greed.” That is emotionally satisfying, but it doesn’t tell the full story. What’s happening is a function of global markets, supply chain realities, and predictable patterns in consumer behavior. In fact, much of what we’re seeing is exactly how the system is designed to work.
America Produces the Most Oil—But Doesn’t Set the Price
The U.S. leads the world in oil production, but oil isn’t priced locally, nor are prices set by oil companies. Because the U.S. exports oil to the global markets, it’s priced globally by traders bidding for oil. That is a distinction many people do not realize.
Think of the oil market as a single, interconnected system. When supply is threatened anywhere, prices respond everywhere. And few places matter more than the Strait of Hormuz, a narrow passage through which ~20% of the world’s oil flows. When that chokepoint is at risk, traders price in the risk immediately.
That’s why a barrel of oil in Texas suddenly becomes more expensive even if nothing has changed domestically. U.S. producers sell into global markets, so American refiners have to match those prices or lose supply. Being the largest producer doesn’t shield us, it simply means we are deeply embedded in the same global system.
Gas Prices Reflect Tomorrow’s Costs, Not Yesterday’s
The second frustration—why prices jump before “cheap” gasoline is sold—comes down to replacement cost.
Gas stations aren’t pricing what’s already in their tanks; they’re pricing what it will cost to replace it. Retail fuel is a low-margin business, and station owners have to think about their next delivery, not their last one. If wholesale prices surge and they keep selling at yesterday’s levels, they risk not having enough cash to refill their tanks.
So, prices adjust quickly. It may feel unfair, but from the retailer’s perspective, it’s a matter of staying solvent in a volatile market.
“Rockets and Feathers”: Why Prices Fall More Slowly
While the rise in prices is fast, the decline is usually frustratingly slow. This isn’t just perception. It’s a well-documented economic phenomenon known as “rockets and feathers,” studied extensively by economists like Severin Borenstein.
The idea is simple: prices shoot up like rockets when costs rise but fall like feathers when costs decline. Part of that dynamic comes from the structure of the market, but consumer behavior plays a surprisingly important role.
When prices are rising rapidly—sometimes by 10 cents a day—consumers become highly sensitive. They search aggressively for the cheapest station and often rush to fill up before prices climb further. That surge in demand and heightened competition forces retailers to move prices up quickly to keep pace with rising replacement costs.
When prices begin to fall, however, that urgency fades. A few cents’ difference between stations no longer feels worth the effort, and consumers become less aggressive about price shopping. With less competitive pressure, retailers lower prices more gradually. The result is the same pattern drivers have noticed for years: sharp increases followed by slow, uneven declines.
Who Actually Benefits When Prices Spike?
It’s also important to distinguish between different parts of the oil industry, because not all companies benefit equally from rising prices.
Producers—the companies that extract crude oil—generally see a windfall when prices spike. Their costs don’t rise nearly as fast as the price of oil, so higher prices tend to flow directly to the bottom line.
Refiners operate under a different set of constraints. Their profitability depends on the “crack spread,” or the margin between the cost of crude oil and the price of refined products like gasoline. When crude prices surge quickly, refiners often can’t pass those costs through immediately, and their margins can shrink.
In fact, refiners often perform best when oil prices are falling. As input costs decline and gasoline prices lag behind, margins can expand—essentially the inverse of what happens during a spike.
The Takeaway
Rapid increases in gasoline prices aren’t evidence that the system is broken. They are the result of global pricing, forward-looking markets, and predictable human behavior all interacting at once.
That doesn’t make the pain at the pump any easier to accept. But it does explain why more domestic production alone won’t prevent these spikes—and why the same pattern keeps repeating.
As long as global supply can be threatened in critical chokepoints like the Strait of Hormuz, price shocks will remain part of the landscape. And when that supply is actually disrupted, prices will move fast.
This article was originally published on Forbes.com and was written by Robert Rapier, Senior Contributor at Forbes and Editor in Chief of SHALE Magazine. The original version can be found on Forbes here.
Keep In Touch with Shale Magazine
As the new era of energy unfolds, you can bet we’ll be the boots on the ground to keep you informed. Subscribe to Shale Magazine for sharp insight into the arenas that matter most to your life. And don’t forget to listen to our riveting podcast, The Energy Mixx Radio Show, where our very own Kym Bolado interviews the most extraordinary thought leaders, business innovators, and industry experts of our time.
Subscribe to get more posts from Amanda Jenkins
