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Your Money

Understand Your Finances

Five key things impacting the price of gas

At the pump, everything from weather to geopolitics can empty your wallet

The following article is part of a broader series discussing commuting and transit, presented by Chase Freedom.

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In recent years, commuters have seen gas prices decline dramatically. In fact, in 2015, gas prices fell by about 25 percent, and middle-income households spent $477 less at the gas pump, according to research from the JPMorgan Chase Institute.

When gas prices drop, and leave more money in wallets, restaurants, groceries or retailers are the biggest gainers. Consumers tend to spend a third of what they would be spending at the pump on eating or shopping, and another quarter on buying more gasoline.

"Low gas prices serve as a tax cut for Americans. There is a strong positive effect on discretionary spending when prices are low for a sustained period of time," says Haresh Gurnani, PhD, Executive Director of the Wake Forest University School of Business Center for Retail Innovation.

Here are five reasons why gas prices can fill your pockets--or leave them running on empty:

1. Crude oil trade

The trading price of crude oil, which gas is refined from, is the largest single factor in the price of gas. Prices can be volatile—accounting for nearly two-thirds of the price of gas in some years— as they respond to weather, geopolitical events, or policies from the Organization of Petroleum Exporting Countries that may disrupt or constrain supply.

2. Time of year

From April through September, refineries switch to a more expensive "summer blend" of gas, which reduces the air pollutants exacerbated by heat. More drivers on the road in the warmer months also means more demand and higher prices.

3. Taxes

The federal gas tax rate is fixed. But state and local taxes vary widely, with a nearly 40-cent difference per gallon between Pennsylvania and Alaska. States that have fewer tolls or lower income or sales taxes, may hike up gas taxes to help pay for infrastructure and road maintenance.

4. Distribution

Retailers near the Gulf Coast region--home to nearly half of US refineries--tend to have relatively low transportation costs. So, if you're a commuter living on the East Coast, the West Coast, or in the Rocky Mountain region, expect to pay more for gas. There are fewer refineries in those parts of the country, and so it takes more money to get gas from refinery to pump.

5. Real estate

Gas station chains often benefit from volume discounts, so stations with higher traffic patterns may be able to sell gas at lower prices. In urban areas, rent tends to be higher than in rural communities, so a gas station's real estate costs may be passed onto customers. And a gas station with no nearby competition can pump up prices by 15 percent.

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