Average price of regular unleaded gasoline
SOURCE: AAA | GRAPHIC: The Washington Post - August 16, 2006

What's Driving Differences in Gas Prices?

By Tomoeh Murakami Tse
Washington Post Staff Writer
Wednesday, August 16, 2006

Frustrated motorists looking for low gasoline prices in the Washington area often know the cheapest spots. What is less clear is why prices vary so much neighborhood to neighborhood and why they have risen so much faster in some places than others.

Consider the range across the region, which has among the highest gas prices in the country.

In the District, the average price of a gallon of regular gasoline last week was $3.22. In Virginia, the average was $2.95, although motorists in much of Fairfax or Arlington counties would have been lucky to pay less than $3. In Maryland, a Potomac service station posted a price of $3.49, while one on the Eastern Shore charged $2.75. Nationally, the average price of regular gasoline fell to less than $3 for the first time since mid-July, to $2.997 a gallon, according to AAA.

Often, the distance between locations with different prices is not so great. Prices can range by as much as 25 cents a gallon between gas stations on opposite ends of a city, and often those prices vary from block to block within the same neighborhoods.

So what gives?

The reasons, say those who study the gasoline industry, are varied and often complex. Some experts cite a costly emissions-reducing additive that is used in gasoline sold in some parts of the country. Others blame varying gasoline taxes and a technique known as zone-pricing, essentially raising wholesale prices in areas that can absorb it.

And a few note that the market for setting prices, which is virtually unregulated, changes because of little more than the whims of gas station managers based on their own finances and street-level evaluation of supply and demand.

"Each of these local areas are a market in of themselves," said John Cook, director of the petroleum division of the Energy Information Administration, a statistical agency of the Energy Department. "Generally speaking, the closer the locality is to a refinery or a central distribution point, all other things being equal, the lower the price ought to be."

But things are often not so equal. A look at how prices have changed across the nation in the past year provides evidence of how turbulent they are.

Much of the Rocky Mountain region managed to get away with price increases of 60 cents or less in July compared with a year ago. The Southern California coastal region and much of the East Coast from Richmond to New England, however, have seen average prices increases of 90 cents or more, according to a Washington Post analysis of data provided by the Oil Price Information Service, a New Jersey firm that tracks energy prices.

Big gaps exist at the neighborhood level as well. In Bladensburg, for example, the average price of gas one week last month was $3.11, 86 cents higher than the same time last year. Back then, it was one of the few neighborhoods in the region offering gas at below the national average. A year later, it was among the pricier places to get gas in the region.

It's difficult to pin down exactly what caused such a surge, but about half of the stations in the Washington area are independent, unbranded dealers who analysts said are sometimes squeezed more by changing market conditions than are branded franchisees.

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