Fill up your tank with regular unleaded gasoline in California and you'll pay an average of $4.34 a gallon, according to AAA. That same fill-up in Texas will cost you an average of $2.81 a gallon, as of Sept. 21. The national average gas price has risen to $3.19 a gallon, up from $2.18 a year earlier. The main culprit for rising prices the past 12 months has been a steady climb in crude oil prices. The price of crude oil and refining makes up about 52 percent of the cost of gasoline, according to the government's Energy Information Administration (EIA). West Texas intermediate crude, for example, has soared to more than $70 a barrel from about $40 a barrel 12 months earlier.
Why the jump in crude prices?
Producers underestimated how quickly demand for gas and other energy sources would rebound as states began to reduce pandemic travel restrictions, and supply wasn't able to keep up. Plus, more than 90 percent of crude oil production in the Gulf of Mexico was offline in late August following Hurricane Ida. About 10 percent of those rigs that went offline won't be back in operation until the end of the year, says Andrew Gross, public relations manager at AAA's national office. "There are some [rigs] that just don't come back up, because of the damage," he says.
From the well to the pump
Crude oil has to be refined into gasoline, which accounts for about 19 percent of the price. Refineries, too, were clobbered during hurricane season, which doesn't end until Nov. 30. Flooding reduced output at many Gulf Coast refineries, which got a one-two punch from hurricanes Ida and Nicholas. But water wasn't the worst of their woes. "A lot of it was electrical issues when the grid went down — no electricity, no power through refineries," Gross says. "Almost all the refineries in the Gulf Coast are reporting some level of restart now."
Once gas is refined, it has to travel to your local station — and that, too, costs money. About 13 percent of the price of gas goes to the costs of distribution, according to the EIA. Put simply, the closer you are to a refinery, the less you'll pay for gas. There are 10 refineries in the Houston area, for example, and gas costs $2.77 there, according to AAA. In Nevada, where there are just two refineries, gas is an average of $3.94 a gallon. "When you look at a map of Texas, it's literally dotted with refineries," Gross says. "And then you look at the West Coast and there's a handful."
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The final variant in the price you pay at the pump is the amount you pay in taxes. The federal government charges 18.4 cents per gallon. The average state gas tax is 30.63 cents per gallon, but there's quite a difference among states. Some states with no income tax, such as Washington, have a relatively high gas tax. Washington charges 49.4 cents per gallon, according to The Tax Foundation, and gas costs an average of $3.86.
California has the highest gas tax, at 65.98 cents. It has the highest gas price, as well: $4.39 a gallon. Oil-rich Alaska has the lowest gas tax: 14.98 cents. The average cost of a gallon of gas: $3.69. Oil-rich Texas levies just 20 cents per gallon in taxes; it is tied with Mississippi for the lowest national gas price: $2.82 a gallon.
Drive smart, save more
Unless you're just across the border from a state with low gas prices, your best bet is to shop carefully for the best fuel deals. You can get help with apps like GasBuddy, which can pinpoints the cheapest gas near you; MapQuest will do the same. But your best bet for saving is to drive smarter.
- Slow down Aggressive driving (speeding, rapidly accelerating and braking) wastes gas. It can lower your mileage by roughly 15 percent to 30 percent at highway speeds and 10 percent to 40 percent in stop-and-go traffic, according to the U.S. Department of Energy.
- Stop idling Turn the engine off while you wait for someone. Unless your car is equipped with a stop-start system, you can turn your car on and off about 10 times without affecting the starter. Any shutdown longer than a minute will save money.
- Plan your trips If you're running errands, plan them in advance to take the shortest route.
John Waggoner covers all things financial for AARP, from budgeting and taxes to retirement planning and Social Security. Previously he was a reporter for Kiplinger's Personal Finance and USA Today and has written books on investing and the 2008 financial crisis. Waggoner's USA Today investing column ran in dozens of newspapers for 25 years.