Gas Prices

[Wake up CALL]

Why are California gasoline prices higher and more
variable than others?

The State of California operates its own reformulated gasoline program with more stringent requirements than Federally-mandated clean gasolines. In addition to the higher cost of cleaner fuel, there is a combined State and local sales and use tax of 7.25 percent on top of an 18.4 cent-per-gallon federal excise tax and an 18.0 cent-per-gallon State excise tax. Refinery margins have also been higher due in large part to price volatility in the region.

California prices are more variable than others because there are relatively few supply sources of its unique blend of gasoline outside the State. California refineries need to be running near their fullest capabilities in order to meet the State's fuel demands. If more than one of its refineries experiences operating difficulties at the same time, California's gasoline supply may become very tight and the prices soar. Supplies could be obtained from some Gulf Coast and foreign refineries; however, California's substantial distance from those refineries is such that any unusual increase in demand or reduction in supply results in a large price response in the market before relief supplies can be delivered. The farther away the necessary relief supplies are, the higher and longer the price spike will be.

California was one of the first states to ban the gasoline additive methyl tertiary butyl ether (MTBE) after it was detected in ground water. Ethanol, a non-petroleum product usually made from corn, is being used in place of MTBE. Gasoline without MTBE is more expensive to produce and requires refineries to change the way they produce and distribute gasoline. Some supply dislocations and price surges occurred in the summer of 2003 as the State moved away from MTBE. Similar problems have also occurred in past fuel transitions.

Why do gasoline prices differ according to region?

Although price levels vary over time, Energy Information Administration (EIA) data indicate that average retail gasoline prices tend to typically be higher in certain States or regions than in others. Aside from taxes, there are other factors that contribute to regional and even local differences in gasoline prices:
Proximity of supply - Areas farthest from the Gulf Coast (the source of nearly half of the gasoline produced in the U.S. and, thus, a major supplier to the rest of the country), tend to have higher prices. The proximity of refineries to crude oil supplies can even be a factor, as well as shipping costs (pipeline or waterborne) from refinery to market.

Supply disruptions - Any event which slows or stops production of gasoline for a short time, such as planned or unplanned refinery maintenance, can prompt bidding for available supplies. If the transportation system cannot support the flow of surplus supplies from one region to another, prices will remain comparatively high.

Competition in the local market - Competitive differences can be substantial between a locality with only one or a few gasoline suppliers versus one with a large number of competitors in close proximity. Consumers in remote locations may face a trade-off between higher local prices and the inconvenience of driving some distance to a lower-priced alternative.

Environmental programs - Some areas of the country are required to use special gasolines. Environmental programs, aimed at reducing carbon monoxide, smog, and air toxics, include the Federal and/or State-re- quired oxygenated, reformulated, and low-volatility (evaporates more slowly) gasolines. Other environmental programs put restrictions on transportation and storage. The reformulated gasolines required in some urban areas and in California cost at least three cents more per gallon to produce than conventional gasoline served elsewhere, increasing the price paid at the pump.

Seventeen states have passed legislation to restrict the use of the gasoline additive MTBE, but of these, only California, Connecticut, Kentucky, Missouri, and New York relied on the additive to begin with. MTBE removal requires large changes to gasoline production and distribution. California faced temporary supply dislocations and price volatility during the summer of 2003 as MTBE was removed from gasoline in the State. Other states may face similar issues as they make the transition to gasoline without MTBE.

Operating costs - Even stations co-located have different traffic patterns, rents, and sources of supply that influence retail price.

[Taxman]

Thanks, that was informative. The funny thing is that I don't even care that much that I'm paying more for gas, though I did think it was a topic worth exploring. After all they pay the same in Europe per Liter (I think that's it) that we pay per gallon. It's certainly true that there are many different factors contributing to gas prices. I will happily pay for gas that is friendlier to the environment. I'm curious where you got this information.

[ QUOTE ]
Competition in the local market - Competitive differences can be substantial between a locality with only one or a few gasoline suppliers versus one with a large number of competitors in close proximity. Consumers in remote locations may face a trade-off between higher local prices and the inconvenience of driving some distance to a lower-priced alternative.

[/ QUOTE ]

Well, that certainly sounds like part of what I was talking about. I saw on the local news the other day a segment about how the prices will probably be even higher during the summer due to the high volume of travelers. Thanks again for the information. Lol, didn't think I'd say that to you any time soon [img]/images/graemlins/grin.gif[/img]. Cheers.

Taxman

[Ray Zee]

i love it when i see someone drinking bottled water for two bucks complain about a ten cent hike in a gallon of gas.
california is unique in its gas blend so prices tend to spike with demand. thats the answer. and of course the oil companies take every shot at getting in a higher price when possible anywhere they can.
we pay the cheapest price for gas in the world for a developed country and its going to end. so open up your wallets.

[daryn]

anyone remember the good old days of .83/gallon? [img]/images/graemlins/frown.gif[/img]

[Wake up CALL]

[ QUOTE ]
anyone remember the good old days of .83/gallon? [img]/images/graemlins/frown.gif[/img]

[/ QUOTE ]

Anyone remember the good old days of 19.9 cents/gallon? [img]/images/graemlins/smile.gif[/img]

[daryn]

no. (yes! 2000 posts!)

[Ray Zee]

in 1966 i bought a new chevy impala convertable with my pool winnings for 2955 bucks. and gas was 25 cents a gallon. same price as a big ice cream cone. same ratio today. except people have the 25 cents inflated to two bucks. so now is the good old days.

[adios]

You beat me to it partner in making the same point. Just taking a price of $1.80 a gallon today and a compounded inflation rate of 3.5% since 1965 (probably slightly higher than that since 65) the price per gallon in 1965 was $0.40 a gallon. Unfortunately I DO remember that it was about $0.25 a gallon then.

[Wake up CALL]

Ray you and Adios must be pups! [img]/images/graemlins/smile.gif[/img] We owned a DX Boron service station around 1963 and during the "gas wars", which occurred pretty often, we went down to 19.9 from 23.9 or 24.9. Yep and a vanilla cone from Dairy Queen was just a quarter.