(NewsNation) — It has happened to you in the past. You fill up your vehicle at a gas station, hoping to get a good price. You drive down the road and see another station advertising gas for cheaper than you just paid.
Each cent can really add up when topping off your tank, so what gives?
Determining gasoline prices is complicated and is often a moving target.
Several factors go into setting the gas prices, starting with the price of crude oil.
American consumers got a glimmer of hope earlier this week when the price of oil dropped back below $100 per barrel.
The “price of oil is only about 50% of the price of gas,” said Joshua Rhodes, research associate at the University of Texas at Austin. “A fall in crude oil prices doesn’t necessarily mean that you’ll get the full effect of that in the price of gasoline.”
Layered on top of oil prices are other expenses such as refining, transportation, taxes, marketing — and don’t forget profit.
A lot of gas stations are franchises. So they’re not actually owned by the big oil companies whose names we see lit up brightly over the pumps from the highway.
“And so they compete with each other in order to get people, you know, in their doors, or to buy their products,” Rhodes said.
According to Maximo Alvarez with Sunshine Gasoline Distributors, “this is very common in our industry. We deal with a commodity and each gas station is a business itself. So it depends on the area.”
Alvarez said some stations are more expensive because of real estate prices in certain areas — higher taxes in some cities — and trucking costs.
“Gasoline is a pretty low-margin commodity,” according to Rhodes. “And most of them actually make more money selling chips and drinks and things like that inside than they do on gasoline.
Rhodes said competitive gas prices are “just really to get you in the convenience store.”
The varying gas prices could also reflect when an individual station bought their gas.
“If they had to fill up their below ground tanks of gasoline when prices were high, they may still be trying to make, you know, make money off of that gas that they bought,” Rhodes said. “Whereas if someone else bought at a more opportune time, they may be able to, you know, pass those savings along to the consumer.”
And even if a station pays less for the gasoline getting delivered, prices may still vary.
“So if it’s like between one city to the next, they may have city taxes,” Rhodes said, but “competition should drive those, you know, close together, as long as the price of oil stabilizes.”
Even if stations are side-by-side, location can play a big role in varying prices.
Contractual agreements and transportation costs from supplier to station vary considerably, making one location’s gas more expensive than the other’s.
Land values can even play a role.
“We typically see prices for gas at city cores to be higher than it is on the periphery,” Rhodes said. “A lot of times that has to do with higher real estate values, you know, the land they actually occupy costs more to be there than it does maybe in a suburban area or lower-income area.”
Broadly speaking, stations closer to interstates pay more for land, so as a result prices may be higher.
“It also comes down to convenience,” Rhodes said. “If those who live in a higher-income neighborhood don’t want to drive halfway across town to fill up with gas, they may be willing to pay more.”
There are taxes and regulations associated with gas prices but there are no real federal regulations or price controls. Nonetheless, a station is not allowed to price gouge.
Alvarez insists he makes the same amount of money regardless of price because higher prices mean higher credit card fees he has to pay.
“If they charge more, eventually people will go elsewhere,” Rhodes said. “And so they can only do it for either so long, or if they’re the only one in town.”
The bottom line is if you want to save money, use an app to find the cheapest gas. You might have to drive out of the way, but the difference in what you pay could be a lot.