IT COULD BE WORSE Gas prices in the U.S. are rising at a slower rate than crude oil prices. Oil, per barrel 98% change June 24, 2007: $68.83 June 25, 2008: $136.49 Gas, per gallon 37% change June 24, 2007: $2.98 June 25, 2008: $4.07 Sources: U.S. Energy Information Administration; AAA.com

The price of crude oil has nearly doubled in the past year, while gas has risen in the U.S. by about one-third, according to statistics kept by the Energy Information Administration. Oil prices are being driven up by rising demand in developing nations. But U.S. drivers have cut back, causing a 1% drop in demand for gas this year compared with the same period in 2007. That has forced refiners and retailers in the U.S. to reduce their profit margins.

"Whenever you look at $4 gas, you feel to some degree that you're being taken advantage of," says Eric Wittenauer, a Wachovia Securities energy futures analyst. "Unfortunately, it could actually be worse."

If crude oil prices come down, refiners and retailers say they will seek to recoup their losses, and the price at the pump is likely to remain high. "When wholesale prices start to fall, retailers will try to expand margins to make up for what they lost on the way up," says Jeff Lenard of the Association for Convenience and Petroleum Retailing.

With plenty of ethanol-infused gasoline on the market and drivers buying less, retailers are making about 12 cents per gallon, barely enough to cover expenses, Lenard says. More than 3,000 gas stations closed last year, the most since 2001.

In the past year, crude oil prices have risen from nearly $69 per barrel to $136. A gallon of regular unleaded gas has gone from an average of $2.98 to $4.07 — a 37% increase.

For most of the past two decades, oil and gas prices have tracked each other, with gas costing two to three times the price of a gallon of crude. Now the ratio is down to 1.28-to-1, with crude oil representing 78% of the price of a gallon of gas. Combined state and federal taxes are between 6% and 12%. Refiners, distributors and retailers divide up the rest.

The price of gas often has risen faster than oil — such as when Hurricane Katrina crippled the Gulf Coast's refining capacity in 2005.

Since last summer, the opposite has been true. U.S. supplies have remained strong, thanks to ethanol mandates and gasoline exports from Europe. U.S. demand fell 1.4% in May compared with a year earlier and is down 1% for the first five months of 2008 — the first drop since 1991, according to the American Petroleum Institute.

Refiners' profits — the difference between crude prices and wholesale gas prices — have shrunk this year, causing some to cut back on production, says Aaron Brady, an oil market expert at Cambridge Energy Research Associates. Valero, the biggest independent refiner, had $261 million in profits for the first quarter of 2008, down from $1.1 billion for the same period in 2007.

"You're looking at Economics 101," says Charles Drevna, president of the National Petrochemical and Refiners Association. "People throughout the country are altering their driving habits, which means that demand is going south."

Consumer groups aren't sympathetic. Tyson Slocum, director of the energy program at Public Citizen, calls the lower profits "probably what they should be."

For retailers, the average profit on a gallon of gas last week was 11.7 cents, down from 14.3 cents last year. It was highest in the Northeast, at 17.4 cents, and lowest in the West, at 3.6 cents, according to Oil Price Information Service. California retailers lost an average of 3.4 cents last week.

Many retailers have tried to make up the difference inside their stores. While gasoline accounts for 71% of convenience stores' sales, it represents only 34% of their gross profits, which increasingly come from packaged beverages, hot coffee and foods prepared on-site.

"The joke is they make more money on the Slim Jim than they do on the gasoline," says John Felmy, chief economist at the petroleum institute.