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Price Variations

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We know that prices vary from state to state, but why is that? Well, the biggest reason is most likely taxes. Other reasons include the city or state's distance from the oil refinery, the competition between local gas stations, and regional factors such as weather or military conflict. Hurricanes and tropical storms can damage drilling platforms, coastal refineries, and shipping ports. Tankers could be lost, damaged, or leak into the ocean. Military conflict could make distribution difficult. All of these factors have a direct impact on your pocketbook.

In some areas of the country, gas is required to meet certain environmental standards to reduce the amount of smog produced. This type of gas is more expensive to produce since it can cause problems in refining, distribution, and storage. Areas such as California and Chicago pay a higher price for gasoline because only a few refineries produce the type of gas to meet the environmental standard of their areas. In California, gas prices are very high as a result of the reformulated gasoline rules, which are stricter than federal clean gas laws; the taxes, which amount to a 20% local sales-and-use tax, a 18.4% federal excise tax, and an 18% state excise tax; and their distance from the refineries.

Gas prices in the Midwest also exceed the national average due to the new reformulated gas rules. The Midwest uses a special type of gasoline called ethanol, which is made from corn. Few refineries outside the Midwest manufacture this type of gas, however, so the supply is limited. In the summer of 2006, new federal rules are requiring all states to use ethanol-additive gasoline, which will likely raise prices since it will be difficult for the Midwest refineries to keep up with the demand.

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