Gas Prices

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Linda Gorman of AAA Arizona discusses the causes and effects of rising gas prices that are now approaching $4 per gallon.

TED Simons: With gas prices creeping uncomfortably towards $4 a gallon it's becoming much more costly to fill up the tank and now Triple A is reporting more drivers are running on empty, which presents another set of problems. Earlier I spoke with Linda Gorman, director of public affairs for Triple A Arizona. Linda, thanks for joining us. We appreciate it.

Linda Gorman: No problem. Thanks for having me.

Ted Simons: Let's talk about the latest with gas price. What are we seeing and how much of an increase are we seeing?

Linda Gorman: Well, we are seeing quite a substantial increase. Depending upon what part of country and what part of the state you live in. Current statewide average is $3.69 a gallon. That's an increase of about 30 cents since this time last month. But 80 cents since this time last year. So motorists are certainly feeling it and especially if you live in areas like Scottsdale, Flagstaff, you are paying substantially more than that. If you live in Tucson, the west valley, you are going to be paying less than that.
Ted Simons: Because of different pipe lines coming into those markets? Correct?

Linda Gorman: Also different blends of fuel. For the metropolitan area we switched over to our summer blend of fuel. We use a different blend of fuel, a little cleaner for the environment. But it costs more to make.

Ted Simons: Why are these prices increasing like they are?

Linda Gorman: Well, the story is oil. That really is the driving force behind it. Oil today closed at just about $111 a barrel. So it's been trading at $100 and above for weeks now. But what's interesting is that it's all speculative. There's no supply concerns. There's really no demand. People aren't running to the gas station and demanding more gasoline. In fact, there's all reports that demand is actually down a bit. A couple of percentage points. So there's not really any supply disruption. There's a lot of noise, people saying Middle East fighting, violence, the economy, but really none of that is, has really translated into anything tangible.

Ted Simons: Is that unusual to have the market and almost the market alone dictating that kind of price fluctuation?

Linda Gorman: We saw some of that back in 2008 when oil prices hit above $140 a barrel. That's for first time ever we really saw oil prices disconnected from supply and demand fundamentals. We are seeing that again this year where we have a market where demand is still not at record levels. It's still, you know, pretty low. Supply is fine. The refinery outputs are OK and margins are healthy right now. So what is the cause? And it really is cash. People are flooding the market, oil, and commodities are a very safe and profitable place to put their money and so it's translating unfortunately into real dollars when people have to go fill up their tank.

Ted Simons: Interesting. You mention what the price of a gallon of gas is here in Arizona. How does that compare to other parts of the country?

Linda Gorman: Well, interestingly, and you mentioned pipelines, we are actually below the national average. So the national average is about $3.80 a gallon. In California you are going to be paying about $4. In six states you will be paying above $6 right now. California is about the highest in the continental United States at $4.21 a gallon. Typically Arizona in the past has always been above the national average. That isn't the case in the last couple of years, we expanded that east pipeline that came in, that kinder Morgan pipeline. What that really did was alleviated our dependence on the California pipe line, the pipeline that comes in from the west so we have two very robust pipe lines delivering gas to our state so we are not so dependent on one pipeline.

Ted Simons: Prices keep going up. $4 a gallon seems like it's almost inevitable. You never know but that's kind of a psychological threshold. Isn't it?

Linda Gorman: It is. Back in 2008, July of 2008, in fact, when we saw $4 a gallon that was really when people really started to change their habits. We typically saw it at about $3.50 but we saw it at $4 where people started to buy different cars. They started to take the public transit. They started to look at compressed work weeks. And they are started to be more invested in alternative energy. There started to be talk about that and companies looking to do that. $4 we know is when that is sort of the unfortunately pain threshold at which everybody feels the pain at $4 a gallon.

Ted Simons: I am not going to ask you if we will get to $4 but it seems summertime is when prices increase. First of all, are you seeing that? An increase in prices? How high do you think things will go?

Linda Gorman: We are seeing that. In fact, we are -- April is usually a pretty big month for gasoline so price run up in April anyway in anticipation of the summer demand. We saw that increase happen earlier this year starting in as late as or as early as February. So what we think is that prices are probably going to peak earlier this summer than they typically do. We typically see prices hit their peak for summer around the Fourth of July. That's what happened in 2008. We think it might happen as on as Memorial Day.

Ted Simons: Before we let you go with these prices going up like this you guys are reporting increase in folks who are running out of gas on the roadways.

Linda Gorman: Right.

Ted Simons: First of all, talk to us about this increase and secondarily, how much damage that can do to your vehicle.

Linda Gorman: Right. Well, we are seeing for the first quarter of 2011 versus 2010, we started to see more people calling Triple A and saying I need gas. I have run out of gas. So question a report and looked at number of people that ran out in 2010 versus 2011, same time period, also looked at 2009 and we are seeing about a 6.5% increase just in that three-month period alone. So we are actually delivering gas to people who have just simply run out of gas average 31 times a day.

Ted Simons: And that's bad for your vehicle. It's not good for your vehicle to run on low anyway. You run out of gas all sorts of stuff can get in the system.

Linda Gorman: It's bad for your car. It's dangerous also to run off the gas while you are on the highway or roadway but it is bad for your vehicle. Because with the fuel injectors and the vehicles we have nowadays there's sediment in your tank and so what can happen when you run very low, and you rely on that light to come on and give you an indication of how much mileage you have left in your tank, it can suck up that sediment. So our car repair technicians are seeing vehicles come in with very expensive repairs to their fuel pumps, we are talking $300, $500 that we are simply a result of people running out of gas.

Ted Simons: All right. Linda, thank you so much for joining us. We appreciate it.

Linda Gorman: Thank you.

Linda Gorman:AAA Arizona;

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