Libya Conflict and Gas Prices

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Michelle Donati of AAA Arizona discusses what a resolution to the civil conflict in Libya could mean to gas prices in Arizona

Ted Simons: Good evening, and welcome to "Horizon." I'm Ted Simons.

Ted Simons: Six months ago, Libya was producing about 1.6 million barrels of oil a day. But civil war brought that country's oil production to a stand still, and now the question is how a resolution to the Libyan conflict will impact oil prices and in turn gas prices at the pump. Here to talk about that is Michelle Donati, public affairs supervisor for Triple A Arizona. Good to see you again. What have oil prices been doing here now that the rebels are pushing toward taking over?

Michelle Donati: Oil prices have been on a roller coaster ride. Just a couple of weeks ago the price of crude was trading at a near $100 per barrel range. It's since fallen to the low 80 range, and that was following the downgrade of the U.S. credit rating. Now with the news of the Gadhafi regime coming to an end, there hasn't been a lot of movement. We saw prices trek downward yesterday, prices kind of rebounded today, so not a whole lot of movement in either direction. At this point it's really too soon to tell, but analysts believe that Libyan crude will be coming back on the market and there's really no clear time line. Some are sake could it take four to six weeks, others are saying it could take years. It's too soon to tell what this will mean for long-term or when this will start to -- when this will impact market prices here in the United States.

Ted Simons: It sounds like the oil exports basically stopped during the fight, you get the oil exports resumed, you got more supply, you should get lower prices.

Michelle Donati: Right. This is certainly good news, because we are -- the end of the regime means a level of uncertainty is being removed from the equation. So that's the good news for the market. But it is too soon to tell when and to what extent we'll see the effects of this on the market. And until really we start to see supply -- Libyan supplies back on the market, any effects that we see in terms of positive oil effects are going to be purely psychological versus the effects of a tangible product being put back on the market.

Ted Simons: Having that stability, do we know how much damage was done to Libyan oil fields and to pipelines?

Michelle Donati: You know, to my knowledge that isn't something that has been assessed. So I believe that is why there's such a widespread of time, a time frame that analysts are forecasting right now. As I mentioned, some are saying four to six weeks, others are saying several years. It is going to depend on the extent of the damage.

Ted Simons: And how important is Libyan oil to the world economy, to the world oil supply? I understand this is considered pretty high quality stuff.

Michelle Donati: It is. It's dubbed as Cadillac grade oil. So it's a pretty high quality oil, it's accounted for about 2% of global oil production, about 85% of the oil actually goes or went to Europe when it was being produced. About 5% to the United States. However, despite the fact that we didn't really receive a lot of the Libyan oil when it was being produced, it still had a considerable effect on U.S. markets, and that's because there was a fear that unrest could spread as well as speculation. So it did have an adverse effect on consumers in the market when that -- when production was stopped in February and hopefully we'll start to see some of that -- some positive effects here in the near future.

Ted Simons: And including in Arizona of course. Talk about Arizona gas prices now. I don't think Libya has too much of an effect right now, but what are we seeing? It seems like prices are going down.

Michelle Donati: We're in a pretty good position in Arizona. The statewide average didL is $3.34. We've had the lowest fuel average in the country for seven weeks now.

Ted Simons: And how come? What's going on?

Michelle Donati: This is a good problem to have. Prices are still 60 cents above where they were this time last year. However, if you look at the grand scheme of things, Arizona, we pay less tax on fuel than the majority of the country, so if you look at California, they pay about 66 cents per gallon on -- in taxes on fuel. Arizona pays just over 37 cents. So each state does vary, and Arizona we're below the national average and one of the lower states when it comes to that. Also, Arizona, we expanded our -- we have more even supplies. So a few years ago there was the expansion of the east pipeline, and before that we were more reliant on the west line for fuel. With more even supplies, there's more competition, and it's really put us in a better position just overall in terms of what we pay at the pump.

Ted Simons: All right. Very good. Michelle, thanks for joining us.

Michelle Donati: Thank you.

Michelle Donati: AAA Arizona

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