Unfortunately oil prices are determined by supply and demand and are bought and sold based off current market prices and conditions.
Yes, by government intervention. It was discussed by some economists when gas was reaching more than $4 to $5 a gallon in the summer of 2008. I cannot find any solid references at the moment. But I remember they talked about the US setting a variable tax on oil and or gas to stabilize the price for consumers. They argued that the tipping point for buying gas (where it reached a point that consumers would reduce their use of it) had been found at that point. They said the US could create a tax that would rise when oil prices were low (i.e. less than $70 a barrel) and shrink when they were high (i.e. more than $100 a barrel). When oil prices were high, the funds collected from the tax would be used to offset the additional costs that the consumer would otherwise pay at the pump. They argued that the price would average around $3 to $3.50 a gallon under such a system I believe.
The price of gasoline might be assigned by the government as one answer suggests (in fact this is done in other countries, like Venezuela where gasoline is less than 25 cents a gallon). It is not possible for the US government to “set” the price of oil, which is traded in a global marketplace and is driven by supply and demand (or traders’ perceptions of supply and demand) as danibyrd’s answer indicates.
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