The average price of gasoline at the pump across the US last week was about $3.47 per gallon according to the Energy Information Administration. Seems high right? Think back to July 2008, when the average price of gasoline reached an all-time high of more than $4.10. That was an expensive time for a summer road trip. Both of these figures support the popular yet accurate perception that gasoline has been getting more and more expensive lately.

It’s also true that major international oil companies, such as Chevron and ExxonMobil, have been making record profits over the past several years. In fact during the quarter that included the record July 2008 gasoline prices, ExxonMobil earned $15.3 billion, the highest quarterly profit in American history. So, it must follow that big oil companies are responsible for the high price of gasoline, right?

This is not the case.

In reality, the price you pay when you fill up your car has nothing to do with Big Oil and everything to do with a symphony of events occurring around the planet.

But before examining those, it is important to understand the process that a gallon of gasoline goes through before it reaches your gas tank. First, crude oil lying miles under the surface of the earth has to be found and pumped to the surface. This is an incredibly complex task that usually occurs in some of the most inhospitable regions of planet. A single well can cost billions of dollars.

Next, the crude oil has to be transported to a refinery to be processed into products that can be used, such as gasoline, diesel and ingredients for plastics. Finally, it is sold and transported to retail gas stations across the country.

According to the US Department of Energy, the current price you pay for a gallon of gas includes several costs, specifically crude oil (about 70 percent of the total), refining (10 percent), distributing and marketing for retail stations (5 percent) and government taxes (15 percent). Given this, it is clear that the price of crude oil is the single largest factor affecting the price of gasoline. So, changing gasoline prices really reflect changing crude oil prices.

Crude oil is a commodity, meaning that it is traded at a single price in a global marketplace. It also means that events happening around the world drive changes in its price. Like any market, crude oil is subject to the laws of supply and demand. Generally speaking, the global supply of crude oil is roughly equal to global demand. As a result, supply disruptions as small as a single refinery fire can have a discernible impact on the price of gasoline.

That’s why events such as tensions with Iran, a war in Libya or any other trouble with oil producing nations can cause the price you pay for gasoline to increase dramatically.

But supply disruptions are only half of the equation. Increased demand also causes prices to rise and the vast majority of new demand is being created outside the United States.

Consider this: according to the UN, the US consumes roughly 25 percent world’s oil but makes up only 5 percent of the world’s population. Simultaneously, there are more than two billion people in India and China who don’t currently consume like we do, but are desperately trying to catch up. They want two cars, lots of things and a big house to put it all in, just like us. Imagine the increased demand for oil when there are two billion more cars on the road.

So as more events threaten a global supply of crude oil and demand continues to increase at incredible rates due to growth in developing countries, its clear that high gas prices are here to stay for some time unless serious energy conservation efforts occur.

Furthermore, according to “Energy Independence” more than 80 percent of the world’s oil reserves are controlled by foreign states, not major oil companies. This fact, combined with a tight global crude oil supply-demand balance, illustrates why gas prices cannot be manipulated by oil companies, which are subject to the same whims of the global market that we are.

The reason oil companies make so much money when crude oil prices are high stems from the fact that they physically own some of the crude oil that they produce, meaning they receive higher payments when the global crude price increases. However, producing oil is an incredibly expensive business that is occurring on an unfathomably large scale. As a result, all of these record profits are invested right back into exploring for and producing more oil.

Simply, it costs a lot of money to drill for oil and that requires large profits for sustained investment.

In the past, politicians and the public alike have called for higher taxes and increased restrictions on oil companies. In reality, a policy change like this would actually make gasoline more expensive, as oil companies would have less money to invest in finding new oil, reducing the amount they can supply and raising the price of crude oil. Going forward, we desperately need to reduce the amount of oil we consume, as there just isn’t enough to go around. But let’s not make the problem worse by imposing punitive measures on an industry that is vital to our economic growth.