Have you ever wondered why gas prices are so much higher in some states than in others? And we're not talking about a little bit higher. At the time of this writing, according to the AAA website, a gallon of gas in California costs on average $4.65, while it only costs $2.53 in Oklahoma. That's a difference of more than $2 per gallon. Why does Oklahoma get the special treatment? And why should Californians have to pay so much? Don't they have enough to deal with, like wildfires, mudslides, earthquakes, and the Kardashians?
As if that's not bad enough, gas prices can vary within the same state, or even the same town. We've saved over 10 cents a gallon on occasion just by driving down the road a few blocks. We've also seen that kind of price difference between gas stations that are just across the street from each other. What gives?
It turns out location is very important when it comes to gas prices. For one thing, each state has its own tax rate for gas, and some are very high, while others are much lower. When federal, state, and local taxes account for about 26% of the per gallon cost of gasoline, this can result in significant differences from state to state. Then there's the distance from the nearest refinery to the gas station. The farther it is, the higher the transportation cost. What about the difference in gas prices in the same town? Lots of factors go into that, like the cost to lease property in one location versus another, whether the brand of gasoline uses additives, and what deals the gas station owner has made with wholesalers.
It really seems like nothing is safe from rising gas prices. Did you know that California tacks on over 61 cents in taxes on every gallon of gas? Alaska only charges 9 cents per gallon. No doubt, that's part of the reason that gas was around 90 cents more expensive per gallon in Cali than Alaska when we checked. Now, before you get on California's case for charging such high taxes, keep in mind that it's expensive to run a state of that size. For example, think of all the people they have to hire to collect those taxes! But while California and Alaska are at two extremes when it comes to gas taxes, these rates vary wildly across the country. For example, Connecticut charges around 52 cents per gallon while New Jersey charges around 11 cents.
Then you have to consider how far the nearest refinery is. Gas has to be transported by pipeline, train, semi-truck, and, sometimes, by barge. Just like it's expensive for you and I to travel (because of gas prices, ironically), it's incredibly expensive to transport gasoline. That's why gas prices are so cheap in the Midwestern and Gulf Coast states, while prices can reach over $4 per gallon on the West Coast.
State regulations can make gas more expensive as well. Using California as an example again (sorry, California), the state requires gas sold there to have certain additives. This mixture is more expensive than gas sold in other states. On top of that, wildfires can cause refineries and pipelines to shut down in California, resulting in further price hikes.
Trying to find the best gas prices in town can be a chore. What makes it even more frustrating is that prices can vary wildly within a 1-mile radius sometimes. There are several reasons why this happens. Take the cost of leasing property, for instance. The gas station located near a freeway exit or on a major intersection may be paying much more for its lease than the station located on a back street just blocks away. That cost is passed on to the consumer and can explain why gas prices vary even within the same franchise.
Different brands of gasoline vary in cost as well. Chevron and Shell mix their own additives into their gasoline, which increases the cost. Another factor that impacts the price of gas is the station's business strategy. Some convenience stores will sell gas at break-even prices or even at a loss just to get customers into the store, which is where they make their real profits, as margins are much higher on in-store merchandise. Other smaller stations, however, rely on gas revenue, so they can't cut their fuel prices as much. And then there's the fact that some gas stations, especially franchises, can negotiate better prices from the wholesaler because they deal in higher volumes.
As you can see, pricing gasoline is complicated. There's a lot that goes on behind the scenes to determine what prices are put on those big gas station marquises in the morning. State and local taxes, leasing and other business overhead costs, transportation logistics, fees gas stations pay to credit card companies, and more all have to be factored in to the final price.