When will prices at the pump start to fall?

By Chris Isidore, CNN

(CNN) — Global oil prices have fallen well below their recent peak. But don’t expect to see relief at the pump in the coming days.

The war in Iran virtually closed the Strait of Hormuz, choking off about a fifth of the world’s oil. However, oil prices tumbled by 12% on Tuesday after President Donald Trump said he expected the war to end “very soon.” Futures were slightly higher again in Wednesday morning trading but nowhere close to the nearly $120 oil was briefly trading for earlier in the week.

Even if oil futures begin to fall back to earth, that doesn’t mean immediate savings at the pump. The cost of a barrel of crude is just one component that goes into setting the price at your local gas station – Americans also pay for refining and shipping gas as well as a variety of taxes.

“There’s an old expression – gas prices go up like a rocket and come down like a feather,” said Tom Kloza, an independent oil analyst and advisor to major oil company Gulf Oil.

Wholesale gas prices rose by 23% since the start of the war in late February. Meanwhile, retail gas prices have risen 20% since the start of the war to a nearly 22-month high, according to AAA, edging up 4 cents again Wednesday to $3.58 per gallon even as oil futures drop.

Kloza said the wholesale increases haven’t all hit the retail market yet.

“My gut tells me that we haven’t seen (oil) futures top out,” Kloza said. “But even once they do, I think we’re likely to see the (retail price) peak in April as opposed to March.”

The math behind your gas prices

The cost at your local gas station comes from a string of calculations.

Crude oil is the primary component of gasoline. Oil is transported to refineries, which break down the crude into component parts – roughly half of which ends up as gasoline. Most of the rest is typically made into diesel and jet fuel.

Finished gasoline is then stored, and brought to terminals via tankers, barges or pipelines, which fill tanker trucks that deliver the gas to gas stations.

All of that adds to the cost of your fill-up. But it begins with the crude oil price.

Based on Tuesday’s closing price for US oil, crude oil would account for about $2 of the cost of a gallon of gas. With a typical wholesale price at $2.64 per gallon, that leaves about 64 cents towards the cost of refining.

On top of that, there are transportation and marketing costs as well as a variety of taxes.

Each state has its own gas tax, ranging from about 9 cents a gallon in Alaska to 71 cents a gallon in California, according to the Tax Foundation. Some states add a carbon tax as well. There’s also a federal gas tax of 18.4 cents, which hasn’t changed since 1993.

The average state gas tax across all 50 states and Washington, DC, is 33 cents, not counting some city or county gas taxes or environmental fees, according to Tax Foundation data.

Beyond the hard numbers, the time of year can also affect the prices at gas stations.

Starting in March, retailers switch to a more expensive “summer blend” of gasoline that’s designed to fight smog. That can add 20 cents to the price alone. Because of that, the high point for gas prices in recent years has come in mid-April as people drive more in the spring.

But ultimately, local gas station owners set the final price based on their own costs and their market and competition. Gas station owners make an average of 15 cents in profit on a gallon of gas, said Jeff Lenard, spokesperson for the National Association of Convenience Stores.

However, profit margins typically are squeezed when gas prices rise rapidly.

“When wholesale prices rise like they have over the past week, retailers trim their margin, because they don’t know what everybody else bought their fuel at and they want to be competitive,” he said.

Convenience store operators who sell gas are also hurt by customers cutting back purchases of higher margin items inside the store.

“They have less money and because the higher gas prices put them in a bad mood,” he said. “And that’s always bad for retail sales.”

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