Why do Fuel Prices Vary from State to State?

Ever wondered why fuel prices are different based on the state you're in? Read more to learn about the best time and place to buy gas.

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:

Fuel Taxes

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.

Other factors

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.

Now that you more insight on why fuel prices vary between states, you may want to look into a hassle-free factoring process,

Try InstaPay – for free! We buy your invoices and handle all collections on your behalf. We offer free same-day ACH with a flat 3% factoring rate. You can sign up for free and cancel for free at any time for any reason. Sign up today.