Why Are Gas Prices So High in Michigan?

Gasoline prices in Michigan frequently fluctuate. The price at the pump involves a complex interplay of global and local factors, including international crude oil markets, taxes, and logistical challenges within the state.

Global Crude Oil Market Influences

The price of crude oil, a globally traded commodity, is the largest component of gasoline costs. Global supply and demand dynamics drive crude oil prices. Robust global economic activity increases demand, pushing prices upward. Economic slowdowns lead to decreased demand and lower prices.

Geopolitical events also influence crude oil markets. Instability in major oil-producing regions, international conflicts, or sanctions against oil-exporting nations can disrupt supply, driving prices higher. Decisions by the Organization of the Petroleum Exporting Countries and its allies (OPEC+) on production levels directly impact global supply. Reduced supply from OPEC+ production cuts can lead to higher crude oil prices.

Gasoline is a refined product of crude oil, so its price is directly tied to global movements. Changes in crude oil costs quickly translate to changes in gasoline prices. Michigan’s gasoline prices are sensitive to developments in the international oil market. The global economy plays a substantial role in determining fuel costs.

Refining and Production Complexities

Transforming crude oil into gasoline involves a complex and costly refining process. Refineries operate continuously, but their capacity can be affected by planned maintenance or unplanned outages due to equipment failure or severe weather. Such disruptions reduce the supply of refined products, leading to higher wholesale gasoline prices.

The type of gasoline produced adds to complexity and cost. Different blends are required for various regions and seasons. Summer blends have lower volatility for warmer temperatures, while winter blends ignite more easily in colder weather. Some areas require reformulated gasoline to meet air quality standards, which can be more expensive to produce.

Refining operations incur significant costs related to energy consumption, labor, and environmental regulations. Disruptions or increased demand for particular blends challenge the refining sector in meeting market needs. These factors contribute to the price of gasoline before distribution.

Taxes and Regulatory Fees

Taxes and regulatory fees make up a substantial portion of the price consumers pay at the pump. These costs are imposed at federal and state levels, contributing to the final retail price. The federal excise tax on gasoline is 18.4 cents per gallon, which includes a 0.1 cent per gallon Leaking Underground Storage Tank (LUST) fee. These federal taxes primarily fund the Highway Trust Fund, supporting infrastructure projects.

Michigan imposes its own state-specific taxes and fees on gasoline. As of January 1, 2025, the state excise tax on gasoline in Michigan is 31 cents per gallon. Beyond the excise tax, Michigan also levies a 6% sales tax on the full retail price of gasoline, which includes the federal and state excise taxes already factored into the price. Additionally, a 1 cent per gallon environmental protection regulatory fee is applied to refined petroleum products sold in the state, contributing to environmental cleanup programs. These combined taxes and fees mean that a notable percentage of the price of each gallon of gasoline directly goes towards government revenue and regulatory compliance.

Distribution, Retail, and Local Market Factors

Once gasoline is refined, it must be transported to retail stations, incurring additional costs that influence the final price. This distribution involves a network of pipelines, barges, and trucks, with transportation expenses varying based on distance and logistical challenges. The wholesale markup, which is the price charged by distributors to gas stations, also contributes to the cost structure.

Retailer margins, representing the profit a gas station makes on each gallon sold, typically account for a smaller portion of the overall price. While the gross markup might average around 35 to 40 cents per gallon, the net profit after accounting for operating expenses like rent, utilities, labor, and credit card fees is often significantly lower, sometimes just a few cents per gallon. Many stations rely on in-store sales of convenience items to generate a larger share of their overall profitability.

Michigan’s local market dynamics also play a role in pricing. Regional supply-demand imbalances can occur due to factors like unexpected refinery shutdowns in nearby states, which can strain local supply and push prices higher. The Upper Peninsula, for example, has faced supply challenges due to pipeline disruptions. Local competition among gas stations can also influence pricing strategies, as stations may adjust prices to attract customers in a competitive environment. These “last mile” costs and localized market conditions collectively contribute to the variations in gasoline prices seen across Michigan.