Where You Live Impacts the Gas Prices You Pay – But Why?

Mar 13, 2013

During an era in which gas prices seem to only get higher and higher, many drivers believe there’s no end in sight. Coupons and discounts are non-existent and limited transportation and fueling alternatives give consumers little choice. In a sign of global economic development, geography is playing its biggest part yet in the price of gasoline, and consumers, politicians, and even oil companies are taking notice.

Although there isn’t one dominating factor that drives the price of gas up or down, the large discrepancies worldwide and nationwide can be attributed to supply and demand, natural disasters, taxes and geography. While the price of gasoline this year has remained below $4 per gallon for most of the country, prices vary widely from coast to coast.

In the United States, remote locations often lead to more expensive products and services, and gasoline is no different. Most notably the West, where there is a lack of refineries, the price of gasoline is more sensitive to unplanned changes, including pipeline connections, distance to active physical trading markets and outages. Without a single oil pipeline cutting across the Rocky Mountains, the West Coast is virtually cut off from the rest of the nation’s supply of gas, making the region extremely susceptible to sudden gas shortages and steep price increases.

Although isolated from oil reserves, the West still inhibits large populations in need of gasoline. Being the ninth largest economy in the world, California’s gas demands require its refineries to operate at near full capacity. Additionally, California also supplies fuel to other Western states such as Oregon, Arizona, Washington and Nevada, increasing the reliance beyond just California on the minimal resources.

Although the West Coast gets the brunt of high prices, the entire country goes through price fluctuations – no matter where one resides. Annually, refineries shut down or reduce production for routine maintenance and adjust their fuel to make a cleaner, more expensive gas. During this time, which usually occurs April to September, consumers tend to travel more, only pushing demand – and prices – higher. Those living in a populated area in an oil producing state, still have a price disadvantage compared to those across town. Oil companies use zone pricing to determine the price each dealer sells by charging dealers different amounts for fuel based on traffic volume, station amenities, nearby household incomes, the strength of competitors, and other factors, all in an effort to boost profits.

Like many industries, government regulation and taxes also contribute to pricing differences. (californiagasprices.com, 2012) Washington holds the highest tax rate for gasoline at 37.5 cents-per-gallon, followed by California at 35.3 cents-per-gallon. Oregon, a state limited by refineries and location, also has a high tax rates at 30. cents-per-gallon. Those states that have refineries on the other hand, have generous tax rates. Alaska and Wyoming, both oil supplying states, are taxed 8 and 13 cents-per-gallon, respectively.  

The demand for gas isn’t just limited within the United States, as it also extends beyond our borders. This is a sign of the times to come, as we can anticipate gas prices to continue to increase, regardless of fueling location.

For businesses who rely on transportation to provide services, the increasing gas prices are a cost that is closely monitored - from coast to coast or one side of town to the other. Businesses are looking for more fuel management solutions to help control and manage their business. Whether a business owner, a driver by profession, or even just a vehicle owner, knowing pricing differences can help you understand what you are paying for in this fast changing industry, what options are available, and even helping to improve your fleets efficiency. A fleet fuel card program is a solid place to start!

References:

californiagasprices.com. (2012, Oct 19). Total US Fuel Taxes by State. (californiagasprices.com, Producer) Retrieved Oct 19, 2012, from californiagasprices.com: http://www.californiagasprices.com/tax_info.aspx

fuelgaugereport.aaa.com. (2012, Oct 19). National Average Prices. (fuelgaugereport.aaa.com, Producer) Retrieved Oct 19, 2012, from fuelgaugereport.aaa.com: http://fuelgaugereport.aaa.com/?redirectto=http://fuelgaugereport.opisnet.com/index.asp