Gasoline prices have risen sharply in recent weeks, with increases happening faster than many consumers expect. For investors and retirees alike, this raises a familiar and important question: if the United States is one of the world’s largest oil producers, why are domestic fuel prices still so sensitive to global events?

While the U.S. produces a significant share of the world’s oil, pricing is not determined domestically. Oil is traded on a global market, where prices are influenced by worldwide supply and demand. When geopolitical tensions threaten key supply routes, such as the Strait of Hormuz through which a substantial portion of global oil flows, markets react immediately. Even if production within the U.S. remains stable, prices adjust to reflect global risk.

For investors, this is a useful reminder: energy prices are not just a domestic story; they are part of a larger, interconnected system.

Another factor that often causes frustration is the speed at which gasoline prices rise compared to how slowly they fall. This comes down to what economists call “replacement cost.” Gas stations price fuel based on what it will cost to replenish their supply, not what they paid for it previously. When wholesale prices increase, retail prices adjust quickly to avoid losses.

On the other hand, when costs decline, prices tend to fall more gradually. This dynamic, often referred to as “rockets and feathers," is influenced not only by market structure but also by consumer behavior. When prices are rising, consumers react quickly, increasing demand and accelerating price adjustments. When prices stabilize or fall, that urgency fades, and price declines tend to be slower.

It’s also important to recognize that not all participants in the energy sector are affected equally. Oil producers often benefit from rising prices, while refiners may see tighter margins when input costs increase rapidly. These distinctions matter when evaluating energy-related investments or broader market impacts.

Almost no sector of the economy operates solely on supply and demand, purely correlated to world markets. In oil markets, there are (and always have been) a wider variety of influencers

For example, in the United States, gas prices vary wildly based on which state you are in. For example, in California, gas prices are currently around $5.85 per gallon.* California has the highest state gasoline tax at 70.9 cents per gallon, combined with state regulations requiring a specific, cleaner-burning fuel blend that is more expensive to produce. Factor in a limited refinery capacity on the West Coast and the result is gas prices that consistently ranks highest in the nation. Compare that with Louisiana, full of oil refineries, with low state fuel taxes (due, in part, to the role of oil in the state's economy), and you'll find that gas is priced at about $2.70 per gallon*, less than half of California's average price per gallon. 

Globally, the differences are even more stark. Currently Hong Kong gas prices are over $15 per gallon**, while Libya averages just 9 cents per gallon.* (No, that wasn't a typo.) Libyan citizens benefit from massive government subsidies, while Hong Kong drivers, already dealing with all the high cost factors associate with dense urban areas, also pay a fuel tax of $6.06 per gallon. 

So, despite market arguments about supply and demand, and effects of congestion in The Strait of Hormuz, of it appears that location and government policy are the biggest factors affecting fuel prices today and throughout the year. 

A Broader Perspective for Investors

While fluctuations in gas prices can feel immediate and personal, they are part of a much larger and more predictable economic pattern. Global pricing mechanisms, supply chain dynamics, geopolitical risk, and even consumer behavior all interact to influence energy markets in ways that are often beyond any one country’s control.

For investors, particularly those focused on long-term retirement planning, the most important takeaway is not to react to short-term volatility, but to interpret it correctly and respond with discipline. Periods of rising energy prices can contribute to broader inflationary pressure, which may impact interest rates, consumer spending, and overall market sentiment. Conversely, declining energy costs can ease inflation and support economic growth. Understanding these relationships allows investors to better contextualize market movements rather than being surprised by them.

From a practical standpoint, this means focusing on a few key principles:

• First, maintain a diversified portfolio. Energy is just one component of the broader economy, and its impact, while meaningful, is rarely isolated. A well-balanced portfolio helps mitigate the effects of volatility in any single sector.

• Second, avoid making reactive decisions based on headlines. Sharp movements in gas prices often feel urgent, but they are typically short-term responses to evolving global conditions. Investment strategies built on long-term goals should not be adjusted based on temporary fluctuations at the pump.

• Third, use these moments as opportunities to revisit your broader financial plan. Rising costs, at the gas station or elsewhere, are a reminder to evaluate spending assumptions, income strategies, and inflation considerations within your long-term investment plan.

Finally, remember that volatility is not the enemy. It is a feature of functioning markets. Energy price swings have occurred consistently over time and will continue to do so. Investors who remain focused on long-term objectives, rather than short-term disruptions, are far better positioned to navigate these cycles successfully. 

In the end, while you may not be able to control the price of gasoline, you can control how you plan, invest, and respond. And over time, that discipline is what drives meaningful financial outcomes.

The views stated in this letter are not necessarily the opinion of Cetera Wealth Services, LLC, and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.

* Empower. 2025. “Pay at the Pump: Gas Prices by State.” July 21, 2025. https://www.empower.com/the-currency/money/gas-prices-by-state-news.

**Erica Sandberg, “A Look at Gas Prices Around the World,” U.S. News & World Report, July 18, 2024, https://money.usnews.com/money/personal-finance/spending/articles/a-look-at-gas-prices-around-the-world