What's Driving Such Different Gas Prices?

HUDSON, Wis. (WCCO) - The uncertainty over the Ukraine war is pumping up gas prices.

But how much we pay can vary greatly from city to city. For example, AAA showed Monday that a gallon on unleaded costs about $3.50 in the Twin Cities. It was averaging 20 cents cheaper in Duluth.

So what's driving such different gas prices?

In Lake St. Croix Beach, a small town on the Minnesota side of the St. Croix River, drivers Monday were paying $3.49 a gallon for gas. But if you hop back in the car and drive a few miles up and over the river into Wisconsin, the price ticks up. Several gas stations were $3.54 a gallon in Hudson, while a few were $3.64.

"It's always about 10 cents more, almost always exactly 10 cents more," said driver Dave Engstrom of the Hudson prices compared to its Minnesota neighbor.

Why do gas prices vary so much from station to station or city to city?

"Oil is a volatility that fluctuates on an hourly basis, day by day," said Patrick De Haan, lead petroleum analyst for Gas Buddy.

Are some gas stations getting wholesale fuel at a cheaper price than others? De Haan said absolutely, comparing it to the stock market. A station can get lucky and buy gas when the price is low, leading to lower prices for drivers.

"But a lot of the time competition kind of forces them to sell it for whatever nearby stations are charging," De Haan added.

Does location play a role?

"I think for most of Wisconsin it's just a matter of taxes," Engstrom said.

Minnesota's gas tax is about $0.286 per gallon. Wisconsin's jumps nearly a nickel at $0.329. But variation can happen without crossing state lines.

"If there's an area of town that's more affluent, people are generally less price sensitive. So the nicer neighborhood stations may try to charge more knowing that hey, when you're on the way to work and you're buying a Starbucks coffee, you're not gonna care if that (gas) price is 5 cents more (per gallon)," De Haan said.

Population density is another factor. It's why prices in the Twin Cities are generally higher than greater Minnesota.

"There will be a bigger discrepancy because Duluth does not use the same high specification gasoline that's required in a major population center like the Twin Cities or Chicago or St. Louis," said De Haan.

It's known as the "summer blend," a more expensive but more environmentally-friendly fuel. The EPA requires it given the sheer number of cars in major metros like the Twin Cities. That blend is required from June 1 to Sept. 15.

"But because the nature of gasoline storage, pipelines, etc, the transition is actually starting to happen already," De Haan said.

That means the price increase is likely happening, too. The summer blend can raise prices 10-20 cents, De Haan said.

Experts say some gas station companies might get volume discounts based on how much gas they buy, which helps drivers save money.

Refineries might also charge different wholesale prices, thus impacting retail prices.