As you undoubtedly know, gas prices are notoriously fickle. They can be counted on to spike unexpectedly, or conversely tumble precipitously, multiple times during any given year. And over time some real dramatic changes can occur. For example, just a little over 5 years ago, the national average for gas was a little over $4 per gallon. Today prices are close to half of that. Ever wonder why the price of gas changes so much? There are a variety of factors at play – some seasonal, some state-specific, some globally significant, and some the result of unpredictable weather-related effects.
Here’s seven main reasons to ponder:
Crude oil is volatile
The most obvious determinant of gas prices is the cost of the resource gasoline comes from: crude oil. Fluctuations in gas prices tend to track fluctuations in crude oil and there are many factors that play into that equation. Today, oil prices are at a low due to Saudi Arabia’s hesitance to cut their ramped up output and a booming North American oil production. It simply a matter of economics, when supply of a commodity is high, prices tend to drop.
Summer Blends
Gas stations sell “summer blend” gas during the hot summer driving season, and revert to winter blend gas in the winter. The reason for summer blend gas comes down to trying to control VOCs (volatile organic compounds), these are components that are more likely to evaporate the hotter it gets and create smog. Unfortunately, mixing up summer blend gas costs more money per gallon to make. The result for the consumer: summer blends are some 10 to 15 cents per gallon more expensive that winter blends are.
Demand
Drivers tend to hit the roads more in the summer, driving up demand for gas, and driving up prices as well (again, supply and demand). In the winter, rough roads and inclement weather encourage motorists to keep the car in the garage – or at least avoid long road trips and that drives demand down.
The Weather
Weather-related disasters like hurricanes can also push up gas prices. The bulk of American refineries and many oil drilling platforms are concentrated near the Gulf Coast where late summer tropical storms and hurricanes sometimes disrupt operations.
Location, location
Gas prices vary widely based on where you are, after all it takes time and money to transport gasoline to places that are far away from petroleum distilleries. Want a good example? In remote Hawaii, with no distilleries nearby, gas prices are usually some 30% higher than on the mainland.
Taxes
Where you live can have a big effect on what you pay for gas due to local taxes. South Carolina, for example, taxes gasoline sales to the tune of 35.15 cents per gallon (as this article was written) while North Carolina taxes some 55.15 cents a gallon. And, big surprise, those tax differences are passed directly along to consumers.
Closed for Maintenance
Refineries tend to do regular upkeep work in the fall and spring, which can lead to interruptions in the supply of gas. Spring, in particular, is a time when refineries shut down because they need time to switch over to summer blend gasoline. Even though this switch over takes just a few week, the interruption in gas flow drives prices up a bit.