The oil market that sets today’s gas prices was invented in western Pennsylvania

The fall of 2026 is a moment of energy centrality, when geopolitics unfolding far away shows up in Americans’ everyday lives.

In Pennsylvania, the statewide diesel price averages US$6.50 per gallon. In Iowa, farmers are paying more than $6 a gallon for diesel. And in Alaska, unleaded gas runs more than $9 a gallon.

As a distinguished professor of history and environmental studies at Penn State Altoona, I write widely about oil and energy issues. This moment has me thinking about how the oil industry began nearly 170 years ago in northwestern Pennsylvania.

Setting crude prices in Oil City

In 1859, Edwin Drake struck oil along Oil Creek near Titusville, Pennsylvania. His well was funded by investors from New Bedford, Massachusetts, who were looking for a replacement for whale oil, which was expensive and challenging to acquire.

The first oil deals were struck on the streets of Oil City, about 90 miles north of Pittsburgh, while traders were still working out basic questions about “rock oil,” as crude was then called: What was it good for, and how much should it cost?

To create a more formal system, the oil traders developed a railroad car designed to be a rolling oil exchange on the Oil Creek Railway. It made 13 stops daily between Titusville and Oil City, and trading was conducted on the honor system, with no written certificates of purchase or sale.

As the industry quickly grew, an oil exchange office was set up in the Arlington Hotel in Oil City.

Traders pushed for a building of their own, arguing that a growing industry needed a more formal market. By 1874, Pennsylvania’s Oil Valley was producing roughly 30,000 barrels of crude oil a day, which sold for an average of about $1.15 a barrel.

Rather than physically moving barrels around, trading had moved from handshakes to paper. Pipelines issued certificates representing the oil in their lines. Traders bought and sold the paper certificates representing oil, often trading the same barrels many times in a single day. As a result, the volume of oil changing hands could reach 10 million to 14 million barrels a day, hundreds of times more than the wells actually produced.

In April 1874, a group of Oil City oil men received a state charter to form the Oil City Oil Exchange. Construction started in July 1877 at the corner of Center and Seneca streets.

When the Oil Exchange opened in April 1878, the local newspaper called it “the largest and most elaborate structure ever erected in the Oil Region.” The building, the paper said, reflected how big the speculative side of the oil trade had become. Standard Oil, the nation’s largest oil company at the time, owned by John D. Rockefeller, kept offices in the building.

The Oil City Oil Exchange heavily influenced early crude oil pricing. Brokers there collected 10 cents a barrel from buyers and 5 cents from sellers.

While the Oil City Oil Exchange was the center of the oil industry for nearly two decades, by 1895 Standard Oil had effectively cornered the market. Its chief buyer, Titusville resident Joseph Seep, began paying producers cash directly, at a price Standard set itself. That control lasted until 1911, when the U.S. Supreme Court ruled in a landmark antitrust case that the trust had to be broken into 34 separate companies.

After that, no single company controlled the price of crude oil.

Who sets the price of oil now

Predicting oil prices became a much bigger concern after the oil crises of the 1970s, when sudden price hikes rattled economies around the world.

Today, the price of crude oil is set largely by traders on two exchanges: the New York Mercantile Exchange and the Intercontinental Exchange. Prices there shift from second to second, and gas prices at the pump follow them, usually within days or weeks.

Much of that trading involves futures contracts, which are agreements to buy oil at a set price on a future date. In the U.S., the benchmark contract is for oil delivered to Cushing, Oklahoma, a storage hub where many of the country’s pipelines meet.

The latest shock to that system began this year. War began on Feb. 28, 2026, when the U.S. and Israel launched airstrikes on Iranian military targets that killed Iran’s supreme leader, Ayatollah Ali Khamenei. Iran struck back with missiles and drones and began attacking commercial ships in the waters around the Strait of Hormuz, the narrow channel between Iran and the Arabian Peninsula that connects the Persian Gulf to the open ocean.

Within days, the attacks and a wave of canceled shipping insurance brought tanker traffic nearly to a halt.

On March 2, a Revolutionary Guard commander made the closure official in a statement carried by Iran’s state media: “The Strait of Hormuz is closed. If anyone tries to pass, the heroes of the Revolutionary Guards and the regular navy will set those ships ablaze.”

Roughly one-fifth of the world’s oil normally passes through the strait. Most of it goes to Asia, not the U.S. But because oil is traded on a global market, prices rose everywhere.

Oil and gas prices kept climbing as peace talks failed. By May 2026, the average price of a gallon of regular gas in the U.S. was 50% higher than before the war began. Since then, Gulf oil producers have found ways around the blockade, sending oil through pipelines to ports outside the strait and through a U.S.-guarded shipping route near Oman. By late September, those work-arounds had restored about half of the oil that normally passes through the strait, helping keep crude prices around $100 a barrel instead of the much higher levels many analysts had feared.

Oil City’s exchange building is long gone. It was torn down in 1926 to make way for a bank. But the market its traders built, where paper claims on oil change hands far faster than the oil itself moves, still sets what drivers pay at the pump in Oil City and everywhere else.

Read more of our stories about Pittsburgh and Pennsylvania.

Brian C. Black does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.