Gas prices haven’t been this low for years, but when it comes to fuel prices, what goes down must come up. Linda Gorman, communications and public affairs director at AAA Arizona, will talk about the 2015 fuel forecast and how low gas prices are affecting fuel tax revenues.
Ted Simons: Gas prices in Arizona are lower than they have been in years, but how long can they stay this low? And how are prices at the pumps impacting summer travel forecasts? Joining us now is Linda Gorman, communications and public affairs director at AAA Arizona. Good to see you again.
Linda Gorman: Thanks for having me.
Ted Simons: What is the average gas price in Phoenix right now?
Linda Gorman: As of today we dipped below $2 a gallon, so we're at $1.98. We have not been here since May of 2009. Prices have fallen and very quickly, in fact.
Ted Simons: Why? What's going on?
Linda Gorman: The big story is oil prices, so oil prices started their plunge in the summer. They have not looked back. They have lost half of their value since the summer, and today, we saw a bit of activity, but prices still continue to trade historically low.
Ted Simons: Is it oversupply? Is it lack of demand? A little bit of both? What's happening?
Linda Gorman: A bit of both. There is plenty of supply. Really, what's happened is the reason it stayed low is OPEC, who they meet regularly to discuss whether they are going to intervene in supply Production. In the past whenever you see prices fall, OPEC has a meeting, and they tend to make an adjustment, and the supply production, and you will see prices turn around. That has not been the case. They have said continuously, and they have neglected to intervene on several occasions, and have said that they believe that the market is fine, and they will not intervene.
Ted Simons: So, is there any thought that oil companies are about to cut back Production, any oil company anywhere?
Linda Gorman: Well, the other part of the story is that domestic production, so, and this is a theory as to perhaps why OPEC is not deciding to intervene, is that oil production in the United States, especially, is very expensive to produce. So, we are seeing domestic oil producers losing money, and they may have to force cutting jobs.
Ted Simons: Interesting.
Linda Gorman: So is this another way to control the market? If competitors can no longer produce oil, maybe they will no longer be competitors.
Ted Simons: Basically OPEC is trying to squeeze out the other guys?
Linda Gorman: Yes. Possibly.
Ted Simons: I know the theory there. Are there triggers? Is it like a $30 a barrel? Did I read it somewhere that there were triggers out there in which they will start cutting back?
Linda Gorman: There have been in the past. It all depends on -- we have seen oil prices above $100 a barrel, and people didn't think that they would get that high. In the past it has been 50, 30 has been a trigger. I read something today where there was a speculator saying it could go as low as 20. If that's the case, good news for motorists, but it really does have some unintended consequences that people don't think of.
Ted Simons: What about diesel prices?
Linda Gorman: Diesel prices are also low. Gas prices are low across the board, in fact. As our price -- the diesel prices, which impact airfares, however, they are not necessarily falling. There are a lot of other factors at play, but there are prices across the board nation-wide, and in Arizona, about half of the states are below $2 a gallon, so it's really interesting that we're talking about $2 a gallon right now.
Ted Simons: Yes. It's, actually, kind of surreal, and you talked about some of the unintended consequences. Let's talk about those in the gas and oil industry. The guy who runs the corner pump station, I don't know if there is any of those left. How is this hitting them?
Linda Gorman: A lot of people tend to think gas prices rise, that company, or that independent owner is making a lot of money. In fact, that is just not the case. Especially now with all of the mergers and the very few companies that are, actually, in the business any more, supplying gasoline, that it's very rarely are those companies making a lot of profit. Margins fluctuate, but typically not by a lot, and they don't stay that way for very long. It's a volatile market, oil and gasoline, and it always has been and will be until there is a replacement found. But, you know, they are not making a lot -- not the ones making a lot of money, as the prices go down they are not making much.
Ted Simons: Let's talk about a forecast. Summer travel season is around the corner and spring. Prices usually kick up a bit in the spring anyway. What are you seeing as far as the rest of the year?
Linda Gorman: That they do. We're predicting, actually, prices are going to stay, certainly well below $3 for 2015, and it's too soon to tell if they will stay below $2 but prices tend to pick up around February where refineries go into the maintenance season. It does not impact us as much as it used to. We have got two distribution lines to pull from. In summer, you will see an increase, and it will fall a bit, and increase in the hurricane season, the last six months have really defied history in terms of when we see the increases.
Ted Simons: Let's see how it goes. Until then, fill her up?
Linda Gorman: If you could store it, right?
Ted Simons: No kidding. Good to see you again.
Linda Gorman: Nice to see you, too.
Ted Simons: Friday on Arizona Horizon, it's the Journalists' Roundtable. The Governor is set to release his much anticipated budget plan, and we'll have more on that lawsuit over inflation adjustments for state funding of public schools. That's Friday on the Journalists' Roundtable. That is it for now. I'm Ted Simons. Thank you very much for joining us. You have a great evening.
Linda Gorman:Communications and Public Affairs Director, AAA Arizona;
