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Gas Prices Are All Over the Place, Here's Why

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With more Americans hitting the road as the summer driving season kicks off, they're paying a lot more attention to the price of gasoline at the pump.

And with prices spiking in several parts of the country, a lot of drivers are wondering why they are suddenly shelling out more to fill up.

As usual, many forces are at work—from refinery outages to spot shortages. And any time prices spike, many drivers suspect that someone may be rigging the market. This time, they may be right.

Gasoline prices are all over the place. Why are prices so different from one place to another?

A lot has to do with the available refining capacity in a particular region, along with the transportation costs in getting fuel to the drivers who need it.

Then add in state gasoline taxes, which range from Alaska, where you pay only 8 cents a gallon, to New York, which tacks on 50.6 cents to the price of every gallon.

Most Expensive State Taxes for Gasoline

State Excise
Tax
Other State
Taxes/Fees
Total State
plus Fed Excise
Taxes (@18.4 cpg)
New York 8.1 42.5 68.9
California 36.0 14.1 68.5
Hawaii 17.0 31.7 67.1
Connecticut 25.0 20.0 63.4
Michigan 19.0 21.9 59.3
Source: American Petroleum Institute, Data as of April 24th 2013

Then add the higher cost of special summer blends required by many state regulations designed to reduce air pollution in warmer months. That can tighten supplies and produce spot shortages, which drive up prices. Those shortages can also crop up at this time of the year when refiners have to shut down to switch over from making winter fuels.

This summer is shaping up as extreme example of a wide range in prices. As of last week, you could fill up in Spartanburg, S.C., for as little as $2.80 a gallon, according to GasBuddy.com, a website that tracks gas prices. Drivers in Chicago, on the other hand, were shelling out as much as $4.64 a gallon.

That's crazy! Why so expensive in Chicago?

Price have surged in the Midwest the last month because a series of refineries shut down unexpectedly.

Scheduled maintenance work at BP's Whiting refinery in northwestern Indiana and at Exxon Mobil's refinery in Joliet, Ill., was already taking longer than expected when a Marathon Oil refinery in Detroit was hit in late April by a fire and other refineries had some glitches, according to Purdue University economist Wally Tyner.

"It's a just a perfect storm of refinery outages," he said. "All these other things had been there, but then the Detroit fire was the straw that broke the camel's back. We've just had a series of unlucky draws."

If cars are getting more fuel efficient, shouldn't that lower demand and push prices lower?

Higher-mileage cars have indeed reduced the amount of gasoline consumed in the U.S., which peaked in 2007 and is expected to continue falling, even as the economy improves. In fact, the economic recovery is further cutting demand as consumers return to auto showrooms and trade in their gas guzzling clunkers for high-efficiency models.

If all the gasoline produced in the U.S. stayed here, the "surplus" should push prices lower. But it doesn't. U.S. refiners are increasingly exporting gasoline and diesel fuel to Central and South America, where demand from those developing economies continues to rise.

Last year, U.S. refiners exported more than 15 percent of overall production, more than triple the amount shipped overseas in 2007.

I don't buy it. I think gas prices are up because somebody is manipulating prices.

So do European regulators. Last month, the European Commission announced it was investigating whether BP, Shell and others got together to fudge prices reported to a widely watched market index. No charges have been brought, and the oil companies have said they are cooperating with the investigation.

(Read More: EU Raids Offices of Big Oil Firms Amid Pricing Probe)

Sen. Ron Wyden, D-Ore., last month asked the Justice Department to join that investigation and look into whether price fixing had boosted pump prices for U.S. consumers.

"Efforts to manipulate European oil indices, if proven, may have already impacted U.S. consumers and businesses, because of the interrelationships among world oil markets and hedging practices," Wyden, who chairs the senate's energy committee, wrote in a letter to U.S. Attorney General Eric Holder.

—By CNBC's John W. Schoen. Follow him on Twitter @johnwschoen.

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