Why do fuel prices vary from state to state?
If you’re a driver this is an all too familiar scenario. You stop for gas and quickly fill up your tank only to notice that a few miles down the road another station’s fuel prices are 30 cents less than what you just paid. Even more drastic is how fuel prices differ across state lines!
After a bit of math you realize a few extra quarters here and there really start to add up. So why do fuel prices vary from state to state?
Here are a few reasons:
Taxes play the biggest role in price variations. Different states, towns and cities tax fuel at different rates depending on the amount of money they want to collect for public infrastructures like roads, highways, and bridges. These taxes are in addition to the cent-per-gallon federal gasoline tax.
According to the American Institute of Petroleum, Pennsylvania is at the top of the list of states with the highest gas taxes at 77.10 cents per gallon.
Fuel Type or Blend
Individual states and some local regions have the power to control the type of fuel blend drivers have access to.
An example of this is environmental laws. A few states, like California, have specific environmental conditions that require cleaner-burning gasoline to help with air quality. This can drive up fuel prices.
Distance to refineries
Simply put, the closer a state is located to a major oil refinery, the lower the cost of fuel. This is because of the transportation cost of bringing gas directly to retailers. Pipeline operators face pipeline tariffs, just like a toll road.
Southern states like Texas, Alabama, and Tennessee have some of the country’s lowest fuel prices because they happen to be located close to America’s oil-refining center on the Gulf Coast. In comparison, states like Alaska and Hawaii have some of the highest fuel prices.
Types of oil
Oil refineries along the East and West coast generally use a more expensive type of oil, which depends entirely on the trade price per barrel of crude oil in the region.
The price of fuel will change with the price of oil for a few other reasons. A good rule of thumb to remember is that fuel prices rise in the summer and fall in the winter every year.
This is most likely because vacations increase during nicer, warmer weather, putting pressure on prices. Additionally, since some fuel is likely to evaporate in the heat and create smog, refineries start to distribute a pricier heat-specific type of fuel when temperatures begin to rise.
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