Friday, April 28, 2006

Gas Prices - I don't get it...

Here's something I don't understand: the hullabaloo about gas prices. As we know, I have some trouble with understanding some of the aspects of how gas prices work.

However, I don't get this graph. I know that some local price fixing goes on (you can't have gas two cents higher than the guy across the street) but why are gas prices so split by state? State taxes?

2 comments:

Clint said...

I don't pretend to know everything about gas pricing, but here are some factors that would change the price between states...

1) Taxes - federal taxes account for something like $.19 of each gallon. I'm not sure what state/local taxes are, but they'd be different everywhere.

2) Logistics - it costs more to ship gas from a gulf coast refinery to Montana than to Oklahoma.

3) Environmental regulations - I'm sure the different environmental controls on gas between states creates extra costs for the refineries.

Don't get me wrong, oil companies are making healthy profits, but the return on their investment is far less than many other companies.

radar said...

The price of gas is actually cheaper in Montana than in Oklahoma, so I'm not sure about transportation.

Another thing I just thought of was ethanol subsidies. When gas is over about 2.someting in Iowa, the Iowa ethanol subsidy makes ethanol blends cheaper than gas. I bet that ethanol-subsidized price is what they are reporting.