Why gas prices vary so widely


Published: Sunday, January 21, 2007 at 6:01 a.m.
Last Modified: Saturday, January 20, 2007 at 11:54 p.m.

You know the feeling. You've just filled up your tank and moments later, you spot a service station selling gasoline for 15, 20 or even 25 cents per gallon cheaper than what you just paid. Three bucks down the drain.

Gasoline prices regularly vary widely around the country.

For example, the lowest average price in the United States on Monday, according to the American Automobile Association, was $2.02 a gallon in Oklahoma. Meanwhile, motorists in Hawaii paid an average price of $2.91 a gallon. Rhode Island's average price was $2.359 a gallon, down 5 cents a gallon from last week, according to AAA Southern New England.

Gainesville averaged $2.30 for regular unleaded Friday, down from $2.38 a month ago and $2.44 last year, according to AAA. The Williston Road Chevron reported $2.17 Friday while Chevron at Hunter's Crossing reported $2.39. Pensacola had the lowest average in the state at $2.20 Friday.

"I think we are going to see lower prices at the pumps," said Randy Bly of AAA Auto Club South.

Bly said gas has dipped below $2 averages in Michigan and Minnesota and as low as $2.15 in parts of Florida. "Barring any unforeseen problems, that trend should continue."

He said prices will certainly dip below $2 in parts of Florida, though he could not say for certain that would happen in Gainesville. "I sure hope we do in other parts of Florida, but I still think they're poised to move lower."

Bly cautioned, however, "Things are never too far away from an event that could reverse this trend overnight."

Why do gasoline prices differ so widely? Many reasons, according to the Energy Information Administration, part of the U.S. Department of Energy. Among them are differences in taxes, distance from supply, competition and environmental regulations.

Taxes are largely responsible for the disparities often seen between prices in Rhode Island and nearby Massachusetts. Rhode Island's tax is 31 cents a gallon, while Massachusetts' is 23.5 cents per gallon — 7.5 cents less.

If one strips out the 18.4 cent-per-gallon federal tax and the varying state taxes from Monday's average prices in Rhode Island, Massachusetts and Connecticut, all are within a couple of cents of each other, according to data from AAA and the American Petroleum Institute.

So taxes don't explain everything. Another big factor is how close a particular market is to where gasoline is produced. Areas farthest from the Gulf of Mexico, the source of nearly half of the gasoline produced in the United States, tend to have higher prices, according to the Energy Information Administration. That may help explain why Mississippians paid an average of $2.12 a gallon Monday, while those in the state of Washington paid an average of $2.65 a gallon.

In addition, environmental regulations play a big role in some states, especially California. That state requires dealers to sell a unique blend of gasoline with more stringent clean-air requirements than called for by regulations. Since there are few sources of that special mix outside of California, prices tend to be volatile. California refineries have to be running near full capabilities to meet the state's fuel demands, according to the EIA. (Additionally, there is a 7.25-percent tax on gasoline, on top of the state's fixed tax of 18 cents per gallon.) States that have more lax restrictions on the blends of gasoline sold, such as Ohio, Mississippi, Michigan, South Carolina and Indiana, tend to have lower prices.

Beyond those factors, pricing strategies, as well as the dealers' own costs, cause price variances, said Jeff Lenard, director of communications for the Alexandria, Va.-based National Association of Convenience Stores.

Sun staff writer Anthony Clark contributed to this report

About 80 percent of all gasoline is sold through convenience store stations, he said.

"The highest price on the street isn't necessarily making the most per gallon," Lenard said. Some dealers may have lower costs than others because of the amount of gas they buy and whether they can rely on sales of other items, such as coffee or sandwiches, for profits, he said.

One observation Lenard hears is that retail gas prices tend to "go up like a rocket" when wholesale prices increase, but go "down like a feather" when those costs decrease.

When gas costs rise, dealers play a game of chicken. "Everybody looks at each other and sees who can blink first" by raising retail prices, he said. In that situation, profits decline and can even turn into a net loss, especially for credit card sales, he said. On the other hand, when wholesale costs fall, "the mentality is we need to capture these margins back," he said, and the dealers, therefore, don't lower retail prices as quickly.

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