Most people interact with the oil supply chain every time they fill up their tank, but few know how much happens before that gallon of gasoline arrives at the pump. The oil and natural gas industry is often talked about as a single entity, but it’s actually made up of distinct segments, each with different infrastructure, regulations, and economics. Understanding those segments is essential context for nearly every energy policy debate in Washington.
Here’s how it works and why it matters for the retail price of gasoline.
Upstream: Finding and Producing Oil
The upstream sector is where it all starts. These are the companies that explore for oil and natural gas beneath the earth’s surface, drill wells, and bring resources to the surface.
Upstream activity begins with geology: identifying formations where oil or natural gas may be trapped. Once a promising deposit is identified, companies must secure mineral rights, obtain permits, and drill wells. If a discovery is commercially viable, production begins.
Companies that are focused on the upstream sector are called “independents” and are responsible for roughly 85% of all domestically produced crude oil. The remaining 15% is produced by “integrated” companies, companies who are involved in every part of the oil and natural gas supply chain. The U.S. upstream sector is uniquely diverse compared to most oil-producing nations. While countries like Saudi Arabia, Russia, and Mexico rely on a small number of state-owned enterprises – known as national oil companies, or NOCs – to develop and produce most of their oil and natural gas, the U.S. had more than 8,000 upstream operators in 2024.[1]
Upstream companies are largely dependent on commodity prices for their product, with some regional variations for transportation. While commodity markets can be incredibly complex, the main takeaway is that upstream companies don’t set the price of oil or natural gas – they receive whatever the commodity price is at that moment in time.
Midstream: Moving and Processing Oil
Once oil is produced at the wellhead, it needs to get somewhere useful. That’s the job of the midstream sector: the infrastructure that gathers, processes, transports, and stores oil and natural gas between the production site and the refinery.
For oil, midstream infrastructure includes gathering lines that collect oil from individual wellheads, transmission pipelines that carry crude over long distances, storage facilities, and rail and truck transport in areas where pipeline capacity is limited.
Midstream companies typically operate on fee-based contracts, charging for the service of moving or storing oil, making them more insulated from commodity prices than their upstream counterparts. Midstream infrastructure is capital-intensive and long-lived. A pipeline built today will operate for decades. Bottlenecks in midstream capacity or lack of midstream infrastructure directly constrain what upstream producers can bring to market.
Downstream: Refining Crude Oil into Products
Crude oil in its raw form isn’t directly useful to most consumers. It has to be refined into the products people can actually use.
Refineries use heat, pressure, and chemical processes to separate crude oil into component parts and convert them into finished products: gasoline, diesel fuel, jet fuel, heating oil, propane, asphalt, and more.
Not all crude oil is the same, and not all refineries are configured the same way. Refineries are built to process specific grades of crude, which is why the source and quality of crude supply matter. The U.S. has significant refining capacity, processing more an 18.6 million barrels per day, concentrated along the Gulf Coast and in the Midwest.[2] Commodity prices, refinery permitting, fuel standards, and environmental compliance costs all directly affect refined product supply and prices.
Retail: The Last Mile
After refining, petroleum products are distributed to end-users. For gasoline, this means pipeline shipment to fuel terminals, followed by delivery by tanker truck to individual gas stations.
Retail gasoline is sold through a mix of branded stations affiliated with major oil companies, independent dealers, and large retailers like warehouse clubs and convenience store chains. The vast majority of branded stations are owned and operated by independent franchisees, not by the oil company whose logo they display.[3]
The price of the gasoline sold is shaped by the cumulative cost of crude oil prices, refining margins, pipeline and terminal fees, and the cost of the final truck delivery to the station. Local competition, regional supply conditions and taxes, blending requirements, infrastructure, and seasonal demand shifts all factor in as well, which is why prices can differ significantly from one market to the next even when crude oil prices are the same nationwide. Learn more about how these factors influence gas prices here.
What This Means for the Price You Pay at the Pump Today
Crude oil takes weeks to move through the full value chain, from wellhead to pipeline to refinery to distribution terminal to gas station. This means a drop in crude prices today doesn’t show up at the pump immediately. Prices tend to rise faster than they fall, a pattern economists call “rockets and feathers.”[4] It’s not unique to oil and shows up in many commodity markets, but it’s especially visible to consumers who watch gasoline prices daily.
That asymmetry is easiest to see when the news is a disruption. A shipping chokepoint closing or a major producer’s output falling can move crude prices within hours, since markets price in expectations as soon as the news breaks. But the oil itself still has to move through the supply chain step by step, which is why a price spike can reach the pump quickly while a price decline takes longer to show up. The next time gas prices jump or plateau, the supply chain is usually the reason why — and knowing which segment a given headline is actually about, upstream, midstream, downstream, or retail, is the fastest way to understand what’s happening and why.
[1] Rystad Energy, Economic Impact of US Independent Operators, August 2025
[2] American Fuel & Petrochemical Manufacturers, afpm.org, Accessed July 1, 2026
[3] National Association of Convenience Stores, Convenience Stores Sell the Most Gas, June 19, 2026
[4] Federal Reserve Bank of St. Louis, Oil and gas prices move together like rockets and feathers, June 2022