Why is gas cheaper across the street?
You just filled up your tank, only to see another station selling cheaper gas just a few blocks away, but why? What causes differences in gas prices between locations?
Experts say it comes down to a few key factors, according to KTLA sister station WBOY.
Competition
When it comes to gas being cheaper across the street, AAA East Central’s Public and Legislative Affairs Manager Jim Garrity said pricing is primarily a tactic to get you to spend money at the convenience store, not the pump.
“[Gas stations] make the majority of their profits in the concession and then the convenience stores that they operate,” Garrity said. “Gas stations do not actually make much at the pump.”
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If a gas station is just slightly farther away from another station, it might cut its gas prices to get people to go just a little bit further to spend money there instead. However, the price of a gallon of gas is ultimately dictated by the owner of the gas station, the current price of oil, and how hard or easy it is to transport.
Crude oil and gasoline
According to the U.S. Energy Information Administration (EIA), there is a direct correlation between the price of crude oil and the price of regular-grade gasoline. This is probably not a surprise, but it’s still one of the main factors that contribute to the final price you pay. How much a gas station pays for its gas is going to impact the price you pay as the end consumer.
Price breakdown of a gallon of gas. (Credit: U.S. Energy Information Administration) U.S. average monthly gasoline and crude oil prices, 2003-2022. This graph shows a direct correlation between the price of crude oil and the price of regular gasoline. (Courtesy U.S. Energy Information Administration)
Average gas prices also change throughout the year, peaking in the summertime months between May and August when people are traveling and demand is highest. The summer blend of gas is also more expensive to produce and can contribute to overall higher gas prices during this time. According to the National Association of Convenience Stores, the summertime gas blend can add as much as 15 cents per gallon.
State tax rates
Gas prices will vary from state to state — and even city by city — because each has its own tax rate for gasoline, which is added to the federal gas tax (about 18.4 cents per gallon). For example, California has the highest tax rate at about 86 cents per gallon of gas, whereas West Virginia’s combined state and federal tax on a gallon of gas is about 56 cents, according to the EIA.
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Because tax rates can vary between cities, you may even find cheaper (or more expensive) gas just down the road.
Location
A gas station’s location also plays a role in how much gas will cost. Gasoline is usually transported to gas stations via tanker trucks, which means travel time and ease of access can be a factor in how much it costs to deliver gas to the station.
“The rule of thumb is that the farther away from a major transportation route a gas station finds itself, the farther away it gets, the more expensive it’s going to be to get gasoline there,” Garrity said.
Because of this, Garrity said rural communities might have higher gas prices than somewhere more urban. On the flip side, a gas station near a highway may choose to have slightly higher prices because it knows people will stop there anyway.
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