Why Gas Prices In The U.S. Vary - YouTube

Unknown: The average price for a gallon of gasoline in the United

States is about $3.19. However, that average conceals a pretty

wide range of prices across the country. The state with the

cheapest gas is Texas where on average consumers paid almost

$2.80 per gallon. The most expensive gasoline is found in

California with an average price of $4.38. In 2019, the US

Average fuel price was $2.60 a gallon 54% of that went to the

cost of crude oil 18% went to state and federal taxes 13% went

to refining costs and profits, and 15% went to distribution and

marketing. A closer look at the cost of a single gallon of fuel

can be even more revealing. It can reflect the number of

refineries in a state and where it is in relation to the Rocky

Mountains. The overall refinery count in the United States has

shrunk dramatically over the last several decades. That means

the country relies on an ever smaller number of ever larger

plants, and is more vulnerable to supply constraints in the

wake of outages.

gasoline is traded on the New York Mercantile Exchange and

spot prices for gasoline or the prices for futures contracts act

as a kind of benchmark for prices overall. But those prices

can be quite different from what a consumer ends up paying at the

pump. This is in part due to regional differences in gasoline

availability, which is heavily dependent on how many refineries

there are in a region, how productive those refineries are,

and whether there is some kind of event such as a refinery

shutdown that is constricting supply, the US is split up into

five regions called petroleum administration for defense

districts or pads for short. They were created by executive

order in 1942, and were meant for managing the distribution of

the domestic petroleum supply. They're used as districts for

wartime rationing ended with the end of World War Two, but they

continued to be used as a system for collecting data about

petroleum use around the country. pad one is made up of

much of the East Coast pad to his most of the Midwest. pad

three is the Gulf Coast. pad four is the Rocky Mountain

region. And pad five is the West Coast which includes Hawaii and

Alaska. Each region contains its own refineries which supply most

of the local gasoline under normal circumstances. pad one

has seven operating refineries, pad two has 24 pad three has 52

pad four has 15 and pad five has 26 because the Gulf Coast has by

far the largest number of refineries prices there are

generally cheaper and the region is more insulated from the

effects of shocks, such as an outage at any one plant.

Petroleum can also be sent from one pad or region to another via

a network of pipelines. So if there is an outage in the

Midwest, fuel prices are liable to spike but supplies can be

sent from the East Coast or Gulf Coast as needed. If there's a

refinery outage in Chicago, the region can receive gasoline from

the Gulf Coast in a matter of three to five days. The West

Coast region, however, is not so lucky primarily because it is

cut off from the rest of the country by the Rocky Mountains.

There's only one pipeline that goes to the West Coast region

from West Texas. So for refinery in California goes down there is

no real relief mechanism. The only real option for

replenishment in the short term is shipping gasoline from Asia,

often countries such as Singapore and Japan, and that

can take two to three weeks. This is actually quicker and

more economical than shipping gasoline from the Gulf Coast

through the Panama Canal. There have been several notable

outages that plants around the country in recent years that

have caused price spikes in the summer of 2021. For example,

extreme heat forced refineries to constrain production in the

Pacific Northwest. There can be even more extreme unplanned

outages. Hurricane Harvey in 2017 shut down a third of the

country's refinery capacity. The BP refinery in Whiting, Indiana

shut down unexpectedly in August of 2015. In the middle of summer

driving season, and basically overnight gas prices shot up 50

cents to $1 per gallon. Also in 2015, an explosion at an Exxon

Mobil factory in Torrance, California caused price spikes

as did a fire at a chevron refinery in Richmond, California

in 2012. Over the last several decades, the number of

refineries in the US has shrunk. There are 129 operating

refineries in the United States as of October 2021. This is down

from 141 as recently as 2017. In 1982, the first year for which

records are available, there were 254 refineries. This means

the nation is becoming evermore reliant on fewer and far larger

refineries. That means that in the future petroleum analysts

say the effects of a single outage will be amplified by the

fact To the single refinery outage causes a larger drop in

total capacity and the fact that there are fewer refineries to

make up the difference layered on top of these regional

variations in refinery capacity or state taxes and policies that

also account for differences in gas prices. The federal gas tax

has remained unchanged since 1993. And many have called for

an increase in order to make repairs to highways. But 36

states have raised or reformed their gas prices since 2010,

just 10 states have gone two decades or more without an

increase. Alaska, for example, hasn't raised its gasoline tax

in 51 years. There is however, quite a wide range between the

lowest and highest tax states.

I would say the average state there's maybe three different

main layers that feed into prices. California is a bit of

an abnormality there's there's probably more like five or six

layers of complexity to California's prices. Their high

taxes, change the price 365 days a year, but then you have some

abnormalities California has on its own. It has its own

requirement for gasoline. In terms of the formulation that's

mandated by the California Air Resources Board. You have a

carbon management program, essentially, Californians are

forced to pay for how much pollution they're emitting from

their vehicles. That adds up to another 15 to 20 cents a gallon.

And then you have the fact that much of California is relatively

isolated from the rest of the country.

California, which has the most expensive gasoline in the

country also has the highest taxes in the country. at an

average of about 85 cents per gallon, the national average is

closer to 50 cents a gallon. California also has a carbon

management program, which adds further costs. Furthermore,

California requires a unique blend of fuel which adds an

additional 10 to 15 cents in cost per gallon. When there is

an outage. California supplies are difficult to replenish, in

part because the state's requirements are so strict. Many

refineries do not have the ability to produce gasoline that

meets the standards and if they do, they still need the

bandwidth. Something called the Nelson complexity index measures

how sophisticated a refinery is and what kinds of products it is

able to make out of oil. Us refineries tend to rank the

highest on the index overall, with an average rating of 9.5.

Compared with European refineries with an average of

6.5. There is a refinery in India with a rating of 14 when

marathon oil required the BP refinery in Texas City, the

company disclosed a Nelson rating index of 15.3. Any

refinery making fuel that meets California standards would

likely have to have a relatively high Nelson complexity rating,

and that could further restrict the number of suitable sources.

California Gas prices are higher than those even in Hawaii, where

there is only one refinery, and the cost of living can be quite

high, many products need to be shipped to the string of

islands, the San Francisco Bay Area is home to some of the

highest gas prices in the country. In general, lower tax

states also have lower gasoline prices. Alaska, which is one of

the most oil rich states in the US is an exception to this rule.

It has very low gas taxes about 20 cents per gallon, but it's

far northern location, climate, geography, sparse population,

and infrastructure mean that producing gasoline is

significantly more expensive. Some kind of federal carbon tax,

for example could be in the country's future. Some democrats

wanted to add one to their proposed $3.5 trillion budget

bill in September of 2021 2020 and 2021 have created some

unusual effects, including rapidly rising fuel prices in

many parts of the country.

Well, Covid is the bulk of the reason why prices have

accelerated so much in the last six months. And it's because

America has has been getting back to normal.

Early in the pandemic demand for gasoline dropped dramatically as

workers were told to stay home.

You'll remember early on in the pandemic, there was a huge

change in behavior. American stop filling up for a period of

several weeks gasoline demand plummeted some 60% and along

with that, the price of oil went into negative territory for the

first time ever. As a result, oil companies scaled back

production of crude oil, they scaled back production of

gasoline. Those are permanent and long term changes.

In 2020, a number of refineries closed in the western United

States, which reduced refining capacity that was combined with

some demand spikes as people who had been stuck in their homes

for months sought to get out of the house and take trips. These

unusual circumstances have produced some huge variations in

wholesale prices between the western and eastern US. Tom

Kloza is a petroleum analyst and one of the founders of oil price

Information Service.

This year it has to do with tight supplies let's say when

you get west of the Mississippi and abundant supplies east of

the Mississippi and differences in wholesale prices. That I've

never seen and, you know, five decades of doing this.

Close the expected Western Region prices to drop a bit as

summer turned to fall and prices in the eastern US to rise with

hurricane season.

And now as we come into fall, you know, we got to peak our

pain season. It's going to transfer to the Gulf Coast and

the East Coast. We have less motor fuel gasoline on the East

Coast, that meets the reformulated standards than we

have in any driving season since 2012.

But there are longer term effects of this that couldn't

play out for the rest of the decade.

Oil companies again made long term decisions, they shut down

production, they laid off 10s of 1000s of workers to try and stay

alive during the pandemic and now it's the fact that demand

has come back so quick. That is pushing gas prices up to some of

these seven year levels. But I think a lot of this is

transitory it's a kind of a new norm. As things smooth out in

the future. I think we will see prices again received