It’s sticker shock turned upside down.
Filling up your gas tank is almost pleasant as prices at the pump continue to fall. In St. Louis on Monday, a gallon of gas averaged $2.22, but it could be found for as low as $2.07.
While the entire country is seeing lower gas prices, Missouri has averaged the lowest. The American Automobile Association listed the state’s average as $2.25 a gallon on Monday. Meanwhile the average in Illinois was $2.57; in California it was $2.87 and a whopping $2.98 in New York.
Missouri (along with Oklahoma, Texas and Georgia) tends to regularly enjoy the lowest gas prices in the country. So what accounts for the huge difference in gas prices from state to state?
Taxes
Missouri doesn’t have the lowest fuel taxes in the country, but at 17.3 cents per gallon they’re fairly low. Added with the federal fuel tax of 18.4 cents, Missourians pay a total of 35.7 cents in tax per gallon. (See the gas taxes for all 50 states here.)
The big difference, according to AAA spokesman Mike Right, is that Missouri doesn’t add sales tax on top of the fuel tax. In Illinois, where the per gallon tax is just one cent higher than Missouri’s, there’s also a 6.25 percent sales tax.
"In other states you pay a gallonage tax often times higher than the 17 cents Missourians pay. On top of that, you pay anywhere from a 5 to 8, even a 10 percent sales tax," Right said. "So the tax can be very noticeable."
As a result, buying a gallon of gas across the river in Illinois will likely cost 10 to 15 cents more.
Location, location, location
Missouri doesn’t have any refineries, but the state is crisscrossed with both crude oil and gasoline pipelines linked to refineries throughout the country.
"The unique advantage in Missouri is several major pipelines traversing the state," said Patrick DeHaan, a senior petroleum analyst with GasBuddy. "The Explorer Pipeline, ConocoPhillips has a pipeline, Sinclair, Amoco, Magellan, just to name a few."
DeHaan said the connection to refineries in Tulsa, New Mexico, Minneapolis, and Chicago helps keep competition sharp. AAA’s Right said Missouri also is connected to more local refineries, in Wood River and Roxanna, Illinois, although he said that’s not where most of the state’s gas comes from.
In addition, there are links to gas from the Gulf of Mexico.
"We have access by both barge and pipeline to the Gulf," Right said, "and the Gulf is the major refining area in the country. One out of every four gallons of gasoline is refined there and distributed through a network of pipelines, ships and barges."
Retail competition
Missouri has a lot of gas retailers with both "branded" petroleum companies, such as BP, Phillips 66 and Shell, as well as independents like QuikTrip, according to AAA’s Right.
"So there’s a great deal of competition out there and they compete for the dollar," he said.
Why are there so many different companies competing for those dollars? Right said it may be because of Missouri’s low taxes. The state’s cigarette taxes are the lowest in the country at 17 cents.
"Cigarettes are a tremendous draw to the retail gasoline market," Right said.
How low could they go?
The price of oil makes up about two-thirds of the price at the pump. This week a barrel of crude oil is hovering around $60. It takes about a $10 per barrel drop in crude oil to see a 25-cent drop in retail prices.
DeHaan said crude oil likely will go below $50 per barrel, meaning the national average could fall to around $2.25. But he warns that at some point lower crude oil prices will put pressure on companies to cut U.S. production.
"Right now we’re still on the fringe where it still may be profitable for some oil companies, it may not be profitable for others, but if oil prices drop considerably more, then obviously the risk rises of some of that production beginning to go off line," DeHaan said.
If production is cut here in the U.S., then prices will start to rise again.
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