States with the Cheapest Gas

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Gasoline prices are close to their lowest levels in nearly three years. They have plummeted from more than $3.60 per gallon at the end of the summer to just $3.22 per gallon. The cost of a gallon is roughly a quarter cheaper than it was this time last year

There may be several reasons behind the falling gas prices. Some point to the decreasing threat of United States involvement in Syria. A more likely factor is that North American oil production and better rail transportation to refineries are forcing crude prices down. Also, it has been suggested that, in the long term, the increasing fuel efficiency of cars is driving down demand, and therefore prices at the pump.

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Of course, on a national basis, prices vary widely. In states like California and Alaska, gas is still well over $3.50 a gallon. In Hawaii, the average gas price is $4.08 per gallon. On the other end of the spectrum are states where gas prices are lower than the national price of $3.22 per gallon. In four states, gas costs less than $3.00 a gallon. These include Missouri, where gas is just $2.86 a gallon. States where gas prices are cheaper benefit from proximity to oil refining capacity and lower gas taxes. Using AAA’s Daily Fuel Gauge Report, 24/7 Wall St. reviewed the 10 states with the cheapest gasoline prices.

The cost of transporting gasoline from the refineries to the pumps is a major factor in determining regional gas prices and in explaining the large price disparities. States in the northeast, as well as Hawaii, where prices are traditionally among the highest, have little to no local refinery capacity, and the cost of transporting the fuel is factored into the gas prices.

Many of the states with the cheapest gas, not surprisingly, have a great deal of refining capacity of their own, or are in close proximity to states that have high capacity. Total national refining capacity is about 16.7 million barrels per day. Six of the states with the cheapest gas prices have the capacity to produce well over 300,000 barrels per day each. Texas and Louisiana, which both have cheap gas, have the largest and second-largest refining capacities in the country, respectively. Texas can refine more than 4.75 million barrels each day.

While refining capacity and transportation costs are important factors in determining gas prices, another important factor — if not the most important — is regional gas taxes. The federal gas tax is 18.4 cents per gallon. State taxes and local taxes, however, range anywhere from an additional 12.4 cents a gallon in Alaska to 53.2 cents a gallon in California. The average state and local taxes per gallon is 31.1 cents, but gas taxes in each of the 10 states with the cheapest gas is — at most — 25 cents per gallon.

The regional cost of living is another factor potentially affecting the cost of gas. According to the Council for Community and Economic Research, the relative cost of consumer goods in states with cheaper gas is lower than the U.S. average. Mississippi, which has the seventh lowest gas prices, had the lowest overall cost of living in the nation.

24/7 Wall St. ranked the 10 states with the lowest gasoline prices based on data from the American Automobile Association’s Daily Fuel Gauge Report. The prices are as of November 7. Local gas prices are also as of November 7 and are from GasBuddy.com. Median household income for 2012 and population data for 2012 came from the U.S. Census Bureau. The U.S. Energy Information Administration provided refining and production data for each state. Gas tax rates for October 1, 2013, came from the American Petroleum Institute. We also reviewed data on the relative cost of living and transportation in the second quarter of 2013 for each state, from the Council for Community and Economic Research.