The prices of gasoline are a factor that says many things and not just the cost of the precious liquid, but also talk about the state of economic affairs, as well as the current sociopolitical unrest of a certain area in the world. A funny thing happens for example in the United States, where gas prices have a tendency to not just vary from gas station to gas station, but also from state to state. These variations are to be expected from any product regardless of the situation from vendor to vendor, however, what makes this particular situation so interesting, is that the variations you can find between states in the US, illustrate differences in prices of up to 1 dollar per gallon in some cases.
From the most basic perspective, gas prices mirror the prices of crude oil, something that is directly affected by the supply and demand of oil around the world, also considering the current local conditions at the countries that are considered top producers. As we write this article, the price per gallon in South Carolina sits at 1,95 dollars; making it the lowest of the country while in Hawaii a gallon of gas will run you $3,00 exactly. How is it possible to have such a huge gap in prices within the same country? Today in Suzzanne Uhland’s blog, we will tell you about three reasons why there are such large price fluctuations from state to state, and what makes the price of gas change so much.
Let’s talk about taxes
The price of crude oil makes up around 51% of the total price of a gallon of gas. Where does the remaining 49% comes from? Well, refining is a large part of that chuck with about 22% of the total cost, while taxes come in second with a substantial 17% while the remaining 10% comes from distribution and marketing. You would think states that have the largest production of crude oil would be amongst the one with the lowest gas prices, but in reality, it doesn’t work that way because crude is traded in a global scale do it doesn’t really drive state price fluctuations. Taxes instead are the most direct factor that clearly varies from state to state and it does make a huge difference in this case.
The average state gas tax hovers around $0,50 per gallon, but California for example taxes each gallon of gas almost twenty cents more while South Carolina’s taxes are about twenty cents less. The United States allows for each state to come up with their own legislations and give them the freedom to tax gas as they see fit; this is then, the main factor why you see such large differences in gas prices from state to state.
Refining is another important factor
As we mentioned earlier, refining takes up a large chunk as far as components that drive gas prices, but with the cost of refining taken into account, the fluctuation amongst states is not as large as it is with taxes. Refining is the process of turning crude oil into gasoline, and that in itself can greatly vary depending on the location of the refinery. Some states have stringent environmental regulations that are sometimes even stiffer than the regulations imposed by the federal government. Something else to consider is that the demand for gasoline forces refineries to work at their maximum capacity at all times, so in the event of unforeseen circumstances that make production stop, it is almost impossible for the remaining refineries to pick up the slack so to speak, so gas prices will inevitably go up. States with the lower gas prices either have less strict regulations in refining fuel or bring their gas from states with said low-cost refining processes. States like Texas and Louisiana have low-cost refineries and export their gas to neighboring states, making southern states the ones with the lowest gas prices in the whole country.
Distribution and Marketing as the last leg of the tripod
The cost of transporting, distributing and marketing gasoline also vary from state to state and are important reasons why there are such huge differences between territories. The amount that costs to get gas from a refinery to a customer is highly influential into the differences amongst prices in different states. Pipeline tariffs, for example, factor into these numbers since the longer gas has to travel, the higher the cost. Southern states are amongst the cheapest places to get gas due to their proximity to the Gulf Coast. We mentioned Hawaii earlier as having the highest prices in the country, and it comes as no surprise since gas has to travel there by boat instead of the regular pipelines, something that makes transportation costs a lot higher than normal.
* Featured Image courtesy of Skitterphoto at Pexels.com