Fuel for thought: Why Texas gas prices are so darn cheap | Crain's Austin

Fuel for thought: Why Texas gas prices are so darn cheap

Gas prices in Texas typically fall below those in other states for several reasons, including a low fuel tax burden and proximity to refining capacity. | Photo for Crain's by Mary Ann Azevedo.

Texans preparing to get behind the wheel over the long Thanksgiving weekend are in a good position to do so, considering gas prices in the state are among the lowest in the nation.

Low state taxes, varied revenue sources and proximity to oil production and refining capacity typically help keep local gas prices well below the national average, which was $2.20 for a gallon of regular unleaded late last week compared with an Austin average of $1.97 a gallon, according to AAA. San Antonio’s gas prices were even lower – at $1.94 per gallon. Just five states in the U.S. have an average gas price below $2, according to AAA.

So why are gas prices in Texas so low? The state’s proximity to oil infrastructure means cities have easier access to supply. It also has one of the lowest gas taxes in the country. According to figures from the American Petroleum Institute, the state’s levy of 38.4 cents a gallon compares favorably with a national average of 48.08 cents.

“Texas has the distinction of having low gasoline taxes relative to rest of the nation, like Pennsylvania, where they are closer to 70 cents a gallon,” notes Patrick DeHaan, senior petroleum analyst for the fuel price-tracking website GasBuddy.com. “Also, being in the oil industry’s backyard and so close to the nation’s infrastructure helps with access to supply.”

Another factor in Texas, DeHaan says, is that Texas is seeing an increase in toll roads so it has been receiving increased revenue from those. As such, “there hasn’t been a pressing need to raise (fuel) taxes,” he noted.

Doug Shupe, public relations manager for AAA, said the larger major metro areas in the state such as Dallas-Fort Worth typically have higher gas prices than markets like Austin and San Antonio. Shupe agrees the access to refineries certainly benefits Texas drivers.

Demand drives pricing

Looking ahead, Shupe  says prices may trend even lower or level off over the next week but are likely to inch up slightly for the Thanksgiving holiday weekend.

“We anticipate a lot of people will be taking road trips so we may see some price increase as the demand for fuel goes up,” Shupe said. “But once that’s over, we’re likely to see lower prices through the rest of the fuel season.”

In general, he notes, winter blend fuel is about 15 to 20 cents cheaper per gallon than summer fuel, because it’s made to be less likely to evaporate. Plus, in the winter, people tend to drive less outside of the holiday seasons.

GasBuddy’s DeHaan agrees. “There are ramblings about OPEC potentially cutting production later this month and just that talk might drive prices higher,” he said. “But if they fail to act, prices could fall even further.”

Unlike markets like St. Louis, Texas doesn’t really see cyclical patterns in gas prices nor is it dominated by one player. In markets such as those, one gas station could raise or lower prices and others will follow suit.

But in Texas, “the market is more diverse,” DeHaan says. As such, retail fuel prices tend to follow wholesale prices.

One Austin-based 7-11 manager said he bases his station’s gas prices on how much he pays for the fuel. Another, who is a franchisee, said he has no say in prices and that they are set by the corporate office.

As for consumers, gas prices are so low that it’s a no-brainer to drive rather than fly. Austin resident Jane Worswick says her family is driving to Missouri over the Thanksgiving weekend.

“Since we are a family of five, it's just too expensive to fly and then rent a car,” she said. “But we have even paid over $4 a gallon in Florida in the past and not blinked” because it was still cheaper than flying, she said.

November 10, 2016 - 6:55pm