Oil prices have taken a downturn on Tuesday, following a steady climb since the onset of the Iran conflict. However, this drop has not immediately translated into reduced gas prices for motorists. As per AAA's data, the national average cost for regular gas climbed 6 cents overnight to $3.54 per gallon, marking a 56-cent increase since late February. This surge comes after a continuous 13-week period of the average being below $3, a low not seen since 2021.
Gasoline prices are not reflective of real-time changes in crude oil costs. This is because the fuel sold at stations was refined from oil that was purchased days or weeks in advance. Therefore, even when crude oil prices experience a brief pause or retreat, the pump prices may continue to rise.
Even if crude prices carry on their downward trajectory, affordable gas prices might take a while to materialize. The price you pay at the pump is significantly influenced by your location, with the range of prices spanning more than $2 per gallon across different states. For instance, as of March 10, Kansas is the only state where the gas price average remains below $3 per gallon.
On the higher end of the spectrum, five states have an average gas price exceeding $4 per gallon: Washington, Hawaii, Nevada, Oregon, and California – the last one holding the title of the most expensive market, averating $5.29 per gallon. This results in a price gap of $2.33 per gallon between the cheapest and the most expensive states.
These variances in state gas prices are not random and can be attributed to structural factors such as fuel taxes, production costs, delivery procedures, and geographical proximity to refineries or pipelines. The U.S. Energy Information Administration reports that federal and state taxes comprise over 14% of the average price per gallon in 2023. Furthermore, state-specific environmental regulations, such as California's requirement for a cleaner-burning gasoline blend, can also influence the price at the pump.
As a result, when oil prices spike, these inherent cost differences can inflate the impact, particularly on already expensive states. These underlying factors continue to exist, regardless of the fluctuations in crude oil prices, which explains the persistent wide gap between gas prices in different states.