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    What moves oil prices, and why pump prices lag

    Crude oil prices are set by global supply and demand. Because neither responds quickly to price, a disruption can force large price swings, as the 2026 Strait of Hormuz closure showed.[1][2][3] Pump prices follow crude only partly and with a lag. Crude was about half of the US gasoline price in May 2026, and economists describe pump prices as rising like a rocket and falling like a feather.[4][5]

    Editor reviewedStrict sourcingUpdated Markets and tradingWorld affairs

    Oil prices move when the balance between how much oil is produced and how much is used shifts, or when traders expect it to shift.[1][6] This explainer covers the main drivers, using 2026 as a worked example, and then explains why prices at the pump do not track crude one for one. It is general information, not financial advice.

    Supply and demand

    EIA describes oil markets as essentially a global auction: when buyers need more than sellers can supply, prices rise until some buyers drop out. It says crude prices are driven by global supply and demand, and that economic growth is one of the biggest influences on demand.[1] In the short term, neither side can adjust much. Oil fields take time to develop, and people cannot quickly swap their car or furnace. So when supply drops, prices have to rise a lot before the market balances.[2]

    In 2026 that is what happened. When the war began on 28 February, oil exports through the Strait of Hormuz fell below 10% of normal.[7][8] Brent rose about 65% in March.[3] High prices then reduced demand. EIA said high fuel prices, fuel shortages and government measures had cut oil use.[9]

    EIA attributes oil price volatility to low short-run price elasticity of both supply and demand, so a supply shock requires a large price move to clear the market.[2] The 2026 shock was unusually large. The Dallas Fed put a full halt to Gulf exports at close to 20% of global supply, against roughly 4% to 6% in the 1973, 1979, 1980 and 1990 disruptions.[10] Demand destruction followed. The IEA’s September 2026 report forecast a 2.5 million barrel-per-day fall in world demand for 2026, concentrated in middle distillates and petrochemical feedstocks.[11]

    Inventories and spare capacity

    Stored oil and unused production capacity act as shock absorbers. When both are low, even the threat of a disruption can move prices more than you would expect from today’s supply and demand.[6] In 2026 governments drew on emergency stocks. IEA members agreed to make 400 million barrels available in March.[12] The G7 agreed a further 100 million barrels on 2 October.[13]

    EIA defines spare capacity as output that can be brought online within 30 days and sustained for 90 days, and says OPEC members hold the world’s spare capacity.[14] In 2026 much of that capacity sat behind the Strait of Hormuz. The UAE’s exit from OPEC on 1 May also led EIA to cut its 2027 OPEC spare-capacity forecast from 3.8 to 2.5 million barrels per day.[15] The IEA estimated observed global stocks fell 507 million barrels from February to August, an average draw of 2.8 million barrels per day.[16] Backwardation means barrels for prompt delivery are worth more than barrels for later delivery.[17] The IEA described backwardation as extreme in September.[18]

    OPEC+, geopolitics and shipping

    The OPEC+ group sets production targets, which EIA says can significantly influence prices.[19] Wars, attacks and storms that block oil from reaching buyers add a “risk premium”. So do higher shipping and insurance costs.[6][20] In September 2026 attacks on Saudi Arabia’s East-West pipeline, a route around Hormuz, helped push Brent to $131.[21][22]

    EIA said in October 2026 that record tanker rates, reflecting insurance costs and longer voyages, were adding to delivered crude costs and to the risk premium.[20] It also pointed to a feedback from refined products: extreme diesel tightness raises refiners’ demand for crude.[23] Spot and futures prices can diverge in such conditions. In early April Dated Brent traded more than $25 above front-month futures.[24] Futures markets bring in producers, consumers and speculators, and EIA says they also carry information about expectations.[25]

    Why pump prices lag crude

    A gallon of gasoline pays for crude oil, refining, distribution and marketing, and taxes. Crude is the biggest piece.[26] In May 2026, when US regular gasoline averaged $4.48, EIA estimated crude was 52% of the price.[4] Taxes barely change with oil prices. The federal tax is 18.4 cents a gallon, and state taxes and fees averaged 33.55 cents in January 2026.[27] So a 10% move in crude moves the pump price by less than 10%.

    Prices also move unevenly. Economists at the St. Louis Fed describe gasoline prices as rising “like a rocket” when crude jumps and falling “like a feather” when it drops.[5] Seasons matter too: US gasoline usually peaks in late summer, when summer-grade fuel costs more to make.[28]

    Between crude and the pump sit the crack spread (refiners’ margin) and retail and distribution margins.[26] EIA said in October 2026 that falling wholesale crack spreads “will not immediately translate” into lower retail prices. Retail and distribution margins had been compressed by surging wholesale prices in 2026, and EIA expects them to recover above their five-year average in 2027.[29] In July EIA expected rising margins to offset part of a crude-driven fall in gasoline prices, because low inventories kept cracks elevated.[30] Inventories are the cushion between short-run supply and demand. When they fall unexpectedly, wholesalers bid prices up.[31] Diesel shows the effect most clearly in 2026: US retail diesel averaged $6.29 per gallon in September, against $4.35 for gasoline.[32]

    See Brent and WTI for the benchmarks, the oil prices tracker for dated moves, and the outlook analysis for how EIA, the IEA and OPEC see the rest of 2026 and 2027.[33]

    Questions readers ask

    What determines the price of crude oil?

    EIA says crude prices are driven by global supply and demand, with economic growth one of the biggest influences on demand. OPEC production targets, inventories, geopolitical events and futures trading also matter.[1][19][6][25]

    Why are oil prices so volatile?

    Supply and demand respond little to price in the short term, so a large price change may be needed to rebalance the market after a shock.[2]

    How much of the gasoline price is crude oil?

    EIA estimated crude oil made up 52% of the US regular gasoline price in May 2026, when gasoline averaged $4.48 per gallon. Refining was 22%, distribution and marketing 15% and taxes 12%.[4]

    Why don't gas prices fall as fast as oil prices?

    St. Louis Fed economists describe gasoline prices as rising like a rocket and falling like a feather. EIA said in October 2026 that falls in wholesale margins do not immediately pass through to retail prices, and that retail margins were squeezed earlier in 2026.[5][29]

    Why is diesel so expensive in 2026?

    The IEA said refined products, especially diesel, were the tightest part of the market, with US diesel above $200 per barrel in early September 2026. Losses of Gulf and Russian product exports contributed.[34][35]

    Sources

    Each numbered claim is a statement we checked against the sources listed with it. Status shows how well established it is.

    1. [1]

      EIA says crude oil prices are driven by global supply and demand, with economic growth one of the biggest factors affecting demand, and describes oil markets as essentially a global auction. confirmedas of 2026-10-10

    2. [2]

      EIA ties oil price volatility to the low short-term responsiveness of supply and demand to price, so large price changes may be needed to rebalance the market. confirmedas of 2026-10-10

    3. [3]

      The World Bank said Brent rose about 65% ($46 per barrel) by the end of March 2026, its largest monthly rise on record, and called the Hormuz closure the largest oil market disruption in history. confirmedas of 2026-03-31

    4. [4]

      In May 2026, when US regular gasoline averaged $4.48 per gallon, EIA estimated crude oil accounted for 52% of the retail price, refining 22%, distribution and marketing 15% and taxes 12%. confirmedas of 2026-05-31

      • Gasoline and Diesel Fuel Update · U.S. Energy Information Administration · 2026-10-06 · What we pay for in a gallon of: Regular Gasoline, May 2026 (chart) (retrieved 2026-10-10)
    5. [5]

      Federal Reserve Bank of St. Louis economists wrote in August 2026 that gasoline prices tend to rise quickly when crude jumps but fall more slowly when crude declines, a pattern known as "rockets and feathers". confirmedas of 2026-08-11

    6. [6]

      EIA notes that when spare capacity and inventories are low, a potential supply disruption can have a larger price impact than current supply and demand alone suggest. confirmedas of 2026-10-10

    7. [7]

      The Middle East conflict that began on 28 February 2026, involving Iran on one side and the United States and Israel on the other, impeded oil flows through the Strait of Hormuz. confirmedas of 2026-03-20

    8. [8]

      On 11 March 2026 the IEA said crude and product exports through the Strait of Hormuz were below 10% of pre-conflict levels, forcing producers to shut in output. confirmedas of 2026-03-11

    9. [9]

      In June 2026 EIA said high fuel prices, reduced fuel availability and government initiatives had lowered oil demand, and forecast a 2026 decline in global consumption. confirmedas of 2026-06-30

    10. [10]

      The Dallas Fed estimated that a complete stop to Gulf oil exports removes close to 20% of global oil supply, about 80% of which normally goes to Asia, compared with about 4% to 6% in the 1973, 1979, 1980 and 1990 disruptions, and called it the first-ever closure of the Strait. confirmedas of 2026-03-20

    11. [11]

      The IEA's September 2026 Oil Market Report forecast world oil demand will fall by 2.5 million barrels per day in 2026, with losses concentrated in middle distillates and petrochemical feedstocks, and recover by 2.6 million in 2027. confirmedas of 2026-09-11· forecast

    12. [12]

      On 11 March 2026 the IEA's 32 member countries agreed to make 400 million barrels of emergency oil stocks available, the largest release in the agency's history and its sixth collective action. confirmedas of 2026-03-11

    13. [13]

      On 2 October 2026 G7 leaders agreed a coordinated release through the IEA of 100 million barrels over four months, including a frontloaded diesel release in the first 20 days, and coordinated refinery maintenance. confirmedas of 2026-10-02

    14. [14]

      EIA says OPEC members maintain the world's spare crude production capacity (output that can be brought online within 30 days and sustained for 90 days) and describes it as an indicator of the market's ability to respond to supply disruptions. confirmedas of 2026-10-10

    15. [15]

      The United Arab Emirates left OPEC effective 1 May 2026; EIA said the exit cut its forecast of OPEC spare capacity in 2027 from 3.8 to 2.5 million barrels per day. confirmedas of 2026-05-31

    16. [16]

      The IEA estimated global observed oil inventories fell by 507 million barrels from February to August 2026, an average draw of 2.8 million barrels per day. confirmedas of 2026-09-11

    17. [17]

      EIA explains that a positive spread of spot over futures prices, called backwardation, reflects that a barrel of crude now is worth more than a barrel for later delivery. confirmedas of 2026-04-24

    18. [18]

      The IEA reported that North Sea Dated averaged $91.00 per barrel in August 2026 before surging to $113.48 on 9 September, with backwardation at extreme levels. confirmedas of 2026-09-11

    19. [19]

      EIA says OPEC can significantly influence oil prices by setting production targets for its members, but compliance is mixed because production decisions rest with individual members. confirmedas of 2026-10-10

    20. [20]

      EIA said tanker rates reached record levels in September 2026, reflecting higher insurance costs and longer routes, adding to delivered crude prices and the risk premium. confirmedas of 2026-10-06

    21. [21]

      Attacks in September 2026 on Saudi Arabia's East-West pipeline, which EIA estimated had carried more than 5 million barrels per day of exports via Yanbu, temporarily halted flows; the pipeline partially resumed flows as of 22 September. confirmedas of 2026-10-06

    22. [22]

      Brent reached $131 per barrel on 15 September 2026 and averaged $114 in September, $23 higher than August. confirmedas of 2026-10-06

    23. [23]

      EIA says extreme tightness in diesel markets adds upward pressure on crude prices because refiners need more crude to meet diesel demand. confirmedas of 2026-10-06

    24. [24]

      In early April 2026 the Dated Brent spot price rose to a premium of more than $25 per barrel over the front-month Brent futures contract, which EIA attributed to extreme short-term tightness after the Strait of Hormuz closure. confirmedas of 2026-04-24

    25. [25]

      Crude oil is traded in futures markets, where producers, consumers and speculators who neither produce nor consume oil buy and sell standardized contracts for future delivery; EIA says futures prices also carry information about supply, demand and expectations. confirmedas of 2026-10-10

    26. [26]

      The retail price of US gasoline reflects crude oil costs, refining costs and profits, distribution and marketing costs and profits, and taxes; crude oil is the largest component. confirmedas of 2026-10-10

    27. [27]

      The US federal gasoline tax is 18.4 cents per gallon, and state taxes and fees averaged 33.55 cents per gallon as of January 2026. confirmedas of 2026-01-31

    28. [28]

      US retail gasoline prices tend to rise in spring and peak in late summer, partly because summer-grade gasoline uses more expensive, less evaporative components. confirmedas of 2026-10-10

    29. [29]

      EIA said in October 2026 that decreases in wholesale crack spreads will not immediately translate into lower retail prices, and that US retail and distribution margins were depressed in 2026 by surging wholesale prices and are expected to rise back above average in 2027. confirmedas of 2026-10-06

    30. [30]

      In July 2026 EIA expected a crude-driven fall in gasoline prices to be partly offset by rising wholesale and retail margins, because low gasoline inventories kept crack spreads high. confirmedas of 2026-07-31

    31. [31]

      EIA describes gasoline inventories as the cushion between short-term supply and demand imbalances; unexpected supply drops can cause wholesalers to bid prices higher. confirmedas of 2026-10-10

    32. [32]

      US retail gasoline averaged $4.35 per gallon and diesel $6.29 per gallon in September 2026, driven by higher crude prices and rising crack spreads. confirmedas of 2026-10-06

    33. [33]

      The IEF put 2026 demand at 105.8 million barrels per day under OPEC, 102.6 million under EIA and 102.4 million under the IEA, a 3.4 million barrel-per-day gap, with 2027 levels ranging from 105.0 to 108.2 million. confirmedas of 2026-09-14· forecast

    34. [34]

      The IEA said US diesel prices passed $200 per barrel in early September 2026, 94% above pre-war levels, and that tightness was most acute in refined products. confirmedas of 2026-09-11

    35. [35]

      The IEA said intensified Ukrainian attacks disrupted Russia's refining system and nearly halted its product exports, compounding diesel losses from the Gulf. confirmedas of 2026-09-11

    Revision history (1)
    1. Page created.

    Created Oct 10, 2026. Last reviewed by an editor on Oct 10, 2026. Next scheduled review: Jan 10, 2027.

    Cite this page

    "What moves oil prices, and why pump prices lag." ContentLora, updated Oct 10, 2026. https://contentlora.com/explain/what-moves-oil-prices

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