Now that most of us are regularly forking over arms and legs to our local gas stations, we're likely thinking a little bit more about the fuel business than we did before. If you've been wondering why the price of gas varies so much between gas stations on a single street, and why it varies so much between our nation's 50 states, read on.
In a recent Washington Post article, Tomoeh Murakami Tse tackled this question, offering a variety of factors that explain price differences.
Let's begin, of course, with taxes. Each state has its own excise tax rate and sometimes some other taxes on gas. For example, it's $0.25 per gallon for gas in Connecticut, but just $0.145 in nearby New Jersey. It's $0.19 in Michigan, but $0.33 in Wisconsin.
Another cause is ethanol, an expensive corn-based additive now found in gas sold in certain states and municipalities. It's there to reduce emissions, and as its own price has shot up because of steep demand, it has in turn contributed to a rise in the price of gas. The additive it replaced cost about $2 per gallon last year, versus a recent price of nearly $5 for a gallon of ethanol. If a neighboring town isn't required to offer ethanol-enhanced gas, you'll likely find its gas prices lower.
Here's another factor: ". Typically, brand-name stations like BP
Then there's "zone pricing," which involves hiking the wholesale price of gas in more affluent areas. Tomoeh Murakami Tse described it as "a long-standing and controversial industry practice ... in which oil companies charge different prices for the same gasoline to dealers in different neighborhoods." The difference can be as much as $0.30 or $0.40 per gallon, but defenders of the practice point to how home prices are steeper in affluent areas. (Uh, OK.)
If a gas station is near a refinery or a distribution center, it should offer lower prices -- at least in theory. The theory seems to be working at a Getty station I sometimes visit that's near some big tanks of fuel.
The bottom line is that you're not completely stuck. Prices are high, but with a little effort -- and now armed with a little more knowledge-- you can find some relatively good deals.
Here are some more articles of possible interest:
Save Money on Gas (one tip: Some discount retailers such as Costco
(NASDAQ:COST)and Wal-Mart (NYSE:WMT)sell extra-cheap gas)
Make the Most of Rising Gas Prices (another tip: Consider hybrid vehicles such as the Toyota
(NYSE:TM)Prius, the Honda (NYSE:HMC)Civic hybrid, the Ford Escape hybrid, GM's Chevrolet Silverado hybrid, or the upcoming Nissan Altima hybrid)
Gas Prices Won't Go Down (get an opinion on whether companies such as Anadarko Petroleum and Petrobras
(NYSE:PBR)are fixing prices)
- The Reason for High Oil Prices (get an intriguing, economics-based explanation)
And finally, if you're excited by the prospect of saving more of your hard-earned dollars, check out our brand-new financial newsletter, GreenLight. It's packed with terrific ideas and guidance and is written by some of our smartest and wittiest writers and analysts.
Longtime Fool contributor Selena Maranjian owns shares of Costco and Wal-Mart. The Fool has an ironclad disclosure policy.