Why are gasoline prices higher in some regions?
Gasoline prices vary over time and among states and regions. In addition to differences in state and local taxes, other factors contribute to regional differences in gasoline prices, including distance from supply, supply disruptions, and retail competition and operating costs.
|Source: Retail regular gasoline prices|
Distance from supply usually means higher prices
Retail gasoline prices tend to be higher the farther the source of supply is from where gasoline is sold because transportation costs increase when the distance from the source of gasoline supply increases. These supply sources include refineries, ports, and pipeline and blending terminals.
Supply disruptions can cause price increases
Events that slow or stop gasoline production can prompt increased bidding for available gasoline supplies. Pipeline disruptions, planned or unplanned refinery maintenance, or refinery shutdowns—such as those that occur when hurricanes hit the United States—may cause increases in gasoline prices. If the gasoline transportation system cannot support the flow of surplus supplies from one region to another, prices will remain relatively high.
Retail competition and operating costs play a role in pump prices
Gasoline station pump prices are often highest in locations with fewer gasoline stations. Even stations located close together may have different traffic patterns, rent, and sources of supply that influence pricing.
Environmental programs add to the cost of production, storage, and distribution
Some areas of the country are required to use special, reformulated gasoline that includes additives to help reduce carbon monoxide, smog, and toxic air pollutants that result when gasoline evaporates and when it is burned. About one-third of the gasoline sold in the United States is reformulated. Other environmental programs have restrictions on fuel transportation and storage. These programs tend to add to the cost of producing, storing, and distributing gasoline.
Why are gasoline prices in California more variable than prices in other states?
California gasoline prices are generally higher and more variable than prices in other states because relatively few supply sources offer California's unique blend of gasoline outside of the state. California's reformulated gasoline program is more stringent than the federal government's program. In addition to the higher cost of this cleaner fuel, state taxes on gasoline in California are higher than they are in most states.
California refineries need to run at near full capacity to meet the state's gasoline demand. If more than one of its refineries experiences operating problems at the same time, California's gasoline prices can increase substantially. Even when supplies are available from other West Coast refineries, U.S. Gulf Coast refineries, or from foreign refineries, they can take a relatively long time to arrive in California.
Last updated: January 14, 2021