Oil Markets

Who sets the price of oil? 

No single company, oil producer, or country simply chooses the price of oil. 

Crude oil is a global commodity, like wheat, copper, or coffee. It is produced by thousands of companies around the world and sold in one connected global market. 

In Texas alone, more than 2,700 companies produced oil and natural gas last year. Even so, Texas still represented only a small share of global crude oil production. 

Oil companies are price takers, not price makers. This means they sell oil at the price determined by the market. They cannot simply decide what each barrel is worth. 

How does the global market determine the price? 

The price of oil follows a basic rule: supply and demand. 

When people and businesses need more oil than producers can supply, prices generally rise. When supply is greater than demand, prices generally fall. 

This balance is priced in real time on global exchanges, mainly the New York Mercantile Exchange and the Intercontinental Exchange. Buyers and sellers make decisions based on current conditions and what they expect supply and demand to look like in the future. 

These trades help set two widely followed oil prices: West Texas Intermediate, the main U.S. benchmark, and Brent, the global benchmark. 

Why do events overseas affect prices in America? 

Oil moves through a global market, so a disruption in one part of the world can affect prices everywhere. 

Before the recent disruption in the Strait of Hormuz, roughly 16 million barrels of crude oil passed through it each day. Most of that oil was headed to Asia, not the United States. But when that supply was cut, buyers around the world competed for fewer barrels, and prices rose in the United States too. 

Strong U.S. production helps provide a cushion during global disruptions. However, even the world’s largest oil producer is still affected by changes in global supply and demand. 

How does the price of oil affect gasoline prices? 

Crude oil makes up roughly half of the price drivers pay at the pump. The rest includes refining costs, distribution, and taxes. 

Gasoline is also traded in a global market. Its price depends on the supply and demand for fuel, not only the price of the crude oil used to make it. 

That is why gasoline prices usually follow crude oil prices, but not always immediately or by the same amount. 

Why can gasoline and diesel prices rise faster than crude oil prices? 

Gasoline and diesel have their own supply and demand, separate from crude oil. Crude has to be refined into fuel, then shipped by pipeline, tanker and truck, and stored at terminals along the way. International conflicts and other global disruptions can affect crude oil supplies and fuel imports.  

When refineries shut down for maintenance or outages, when imports slow, or when fuel inventories run low, fuel prices can climb even while crude oil prices hold steady. EIA notes that gasoline prices can change rapidly if something disrupts crude oil supplies, refinery operations or pipeline deliveries. 

A few patterns explain most of the gap: 

• Seasons. Summer driving raises demand, and summer-blend gasoline costs more to make. From 2004 through 2023, the average price of regular gasoline in August was about 40 cents per gallon higher than in January. 

• Refinery outages anywhere in the world. Fuels are traded globally, so a refinery problem overseas can raise U.S. prices. When refineries that make a lot of diesel go offline, for example, diesel prices can rise faster than gasoline. 

• Inventories. Fuel in storage is the cushion between supply and demand. When stocks fall unexpectedly, wholesalers bid more for the supply that is available. 

• Replacement cost. Stations price fuel based on what their next delivery will cost, not what they paid for the fuel already in the tank. Prices can therefore rise quickly when wholesale costs jump and fall more gradually as cheaper supply works through the system and competing stations cut prices.

What do refinery margins have to do with gas prices? 

A refinery margin is the difference between what refiners pay for crude oil and what they sell fuel for. It has to cover the cost of running the refinery as well as any profit. Over the past decade, refining costs and profits made up about 15% of the average price of a gallon of gasoline, a smaller share than crude oil or taxes. 

Refining margins tend to rise when fuel supplies are tight and fall when supplies are plentiful. EIA tracks this through the “crack spread,” which measures the difference between crude oil and fuel prices. Higher margins can signal tight supplies and encourage refiners to produce more fuel. 

Why do oil company earnings rise and fall with prices? 

Oil companies sell at the market price, so their earnings follow that price up and down. When global prices rise, each barrel brings in more revenue while the cost of producing it changes much more slowly. When prices fall, the opposite happens, and earnings can turn into steep losses. 

The market that lifts earnings in strong years is the same one that cuts them in weak years. Earnings from strong years help pay for new wells, pipelines and refinery upgrades that take years to build, and that supply is what can eventually bring prices back down. 

What is an export ban? 

An export ban is a government policy that stops or limits U.S. producers from selling American goods to buyers in other countries.

In the oil and gas industry, this can mean crude oil, which is the unrefined product that comes out of the ground, or refined products such as gasoline, diesel, and jet fuel.

The idea may sound simple: keep more American products at home to lower prices. But an export ban would not change the fact that prices are set by supply and demand in a global market.

In the long run, it could mean there would be fewer less crude and petroleum products available globally and domestically.

Would an export ban help Americans? 

An export ban would shrink the number of buyers for American oil. With fewer customers, producers could cut investment and produce less oil. 

Restricting exports could provide little to no price relief for consumers. It could also reduce domestic production and put upward pressure on prices. 

Exports support American production. In 2025, the United States exported 3.9 million barrels per day of crude oil. That was equal to about 31% of total U.S. crude oil production. Closing off that market could weaken demand for American oil and reduce the overall supply of oil. 

Not all crude oil is the same, and U.S. refineries operate best with certain types. Trade allows American producers to sell their oil where it can be used efficiently, while U.S. refineries import other types of crude. 

American exports also add oil to the global supply, helping keep prices lower than they otherwise would be. An export ban could disrupt this system without changing how global oil prices are set. 

How would an export ban affect the United States?  

No single company or country sets the price of oil. Prices reflect supply and demand across a global market made up of thousands of producers, buyers, sellers, and consumers.

An export ban would not separate the United States from that market. It could reduce the number of buyers for American oil, discourage investment, lower domestic production, and disrupt the flow of crude oil to refineries.   

More American production does not make the United States immune from global disruptions. But adding supply strengthens the U.S. energy system and puts consumers in a better position when global markets are under stress. 

In simple terms, keeping every American barrel at home would not mean every barrel could be used efficiently here. An export ban would not create more oil, more refinery capacity, or more gasoline. Instead, it could reduce American production, disrupt refinery supplies, and fail to lower prices.

How can I stay informed about the global market? 

Individuals can stay informed and engaged on permitting reform and broader energy policy issues in several ways. 

To stay informed about policies that affect American energy production, supply, and affordability, join Energy Citizens to receive updates as well as learn about opportunities to make your voice heard.