Gas prices are a daily reminder of the importance petroleum products play in our lives and our economy. Most busy streets include service stations offering large signs advertising the price of gasoline and diesel. When we see prices go up, we usually notice the change immediately. When they come down, we might feel a sense of relief. The up and down movements of gas prices are a source of constant questions, bewilderment and occasionally controversy.
In short, the retail prices for gasoline and diesel are determined by thousands of individual decisions, made mostly by independent businessmen and women, that reflect the dynamic workings of supply and demand. That dynamic also represents the fierce competition between service station operators, the vast majority of whom are independent business men and women who make the decisions about what to charge for fuel.
Market Conditions Drive Pump Prices
According to experts at the US Energy Information Administration and the Federal Trade Commission, market conditions primarily determine what we pay at the pump for gasoline and diesel. Crude oil costs are the largest component, typically comprising about two-thirds to three-quarters of the US average price for a gallon of regular unleaded gasoline. Taxes, distribution and marketing, and refining costs make up the balance.
Taxes Can Materially Impact Retail Prices
Fuel taxes vary wildly from state to state and that has a direct impact on what motorists pay at the pump. The one common denominator across the board is the federal excise tax of 18.4 cents per gallon. After that, it’s up to state and local governments to decide how much of a cut they’ll take at the corner gas station. State and local taxes can include charges such as sales, excise, and gross receipts taxes, underground storage tank fees, oil inspection fees and environmental fees.
Most of the six states in WSPA’s territory routinely rank among the highest taxed with California and Hawaii frequently topping the list. For example, according to the American Petroleum Association, as of April, 2013 California was tied for the highest fuel taxes, with combined levies on unleaded regular totaling more than two-and-a-half times those of Alaska, the state with the lowest taxes.
Why Gas Prices Vary From State to State
Where you live materially impacts what you’ll pay for fuel. As previously noted, state and local taxes play a significant role in differing fuel prices from state to state. Examples of other factors contributing to those differences are environmental regulations, whether or not a state has access to pipelines, and the cost of transporting supplies of crude oil and finished gasoline into your state.
The Gasoline Market is Heavily Regulated
It’s understandable that when gas prices trend upward, consumers want to know if they’re being taken advantage of at the pump. Numerous investigations over the past several decades, conducted by the Federal Trade Commission, US Department of Justice and various state Attorneys General have consistently found that market condition primarily govern the price of gasoline and diesel fuel. The petroleum industry is subject to stringent regulations, with stiff penalties for violations. Oversight by the aforementioned entities ensures that consumers are protected from unfair pricing practices.