Gas is up but oil is down? Here’s what drivers need to know

We’re all feeling the dent in our wallets as the cost of filling up the tank remains sky-high. But while the average cost per gallon is hovering around $4, you might have seen the price of oil has fallen. It’s a contradiction that understandably leaves many drivers with some questions: Why aren’t the prices at gas stations reflecting that drop? And why do prices seemingly go up faster than they come down?

In the gasoline industry, they have a phrase for this phenomenon: Rising like a rocket and falling like a feather.

Hmmm, that feels a little unfair. But the price of oil is only part of the story. Sure, oil accounts for the majority of the price we pay for a gallon of gas, but many other variables (inventory levels, regulations and taxes) also impact the price difference between oil and gasoline. For the past year, the gap between oil and gas has been largely due to supply vs. demand — with higher demand and lower gasoline inventories.

But wait, there’s more. The cost of compliance and environmental regulations are at record highs, the price of corn (used to produce ethanol, another common ingredient in most gasoline) has skyrocketed and increasing state gas taxes also impact how much you pay.

All of this is happening as the war in Ukraine broke out, further impacting supply challenges. And now the summer driving season is upon us, increasing demand and the cost to produce gasoline. As I said, oil is just one part of the story.

With lots of factors to consider, the reality is, that higher gas prices may not go away as quickly as we would like. That means it’s time to budget for higher spending on gas.

Lindsey Bell is an award-winning investment professional with a passion for personal finance and more than 17 years of Wall Street experience. Bell’s unique ability to connect the dots between data and real life and craft bite-sized money ideas that people can use and apply stems from her deep background as an analyst, researcher and portfolio manager at organizations including J.P. Morgan and Deutsche Bank. She is known for demonstrating why and how an understanding of all things money improves a person’s finances and overall well-being. An ongoing CNBC contributor, Bell empowers consumers and investors across all walks of life and frequently shares her insights with the Wall Street Journal, Barron’s, Kiplinger’s, Forbes and Business Insider. She also serves on the board of Better Investing, a non-profit focused on investment education.