Arizona: The Grand Gas Prices State
If you thought businesses here were making huge profits off of gas, you’d be wrong
KINGMAN - Gasoline prices have been on the rise in Arizona during the past five weeks, jumping about 12 percent across the state, including here in Kingman.
The local price for a gallon of regular unleaded averaged $2.163 Wednesday morning, according to prices compiled from 22 local stations by AAA's Fuel Price Finder, www.aaa.com/fuelfinder. That price remains about 15 cents higher than the statewide average of $2.026, as is typical for northern Arizona, which receives most of its gas via truck from Phoenix and Tucson.
Gas prices for Kingman's nearest neighbors - Bullhead City, Flagstaff and Lake Havasu City - averaged $2.15, $2.252 and $2.187 per gallon, respectively.
Arizona's gas price average remains well above the current national average of $1.891 per gallon.
In fact, the state's gas prices now rank among the most expensive in the continental U.S., with only the west coast, Nevada and New York averaging higher.
According to AAA spokeswoman Michele Donati, that distinction is somewhat of a return to normal for Arizona, which she said has historically placed in the upper-half of gas prices nationally. The situation is compounded by the fact that Arizona has no oil refineries of its own and must rely on a pair of pipelines flowing into the southern part of the state from California and Texas.
But even so, Donati noted that oil has been trading stably in the mid to upper $30 range for weeks, and demand for gasoline has been dropping for 13 consecutive months nationwide. Normally, she said, these factors would lead to the price of gasoline dropping considerably, as it did in the latter half of last year, when prices fell from more than $4 a gallon in July to well below $2 by December.
Donati blamed two culprits for keeping Arizona's prices inflated. The first, she said, were California oil refineries making a conscious decision to sell less gas to Arizona in hopes of making more money from California's sky-high gas prices - the highest in the nation at $2.265 per gallon. Donati also claimed that refineries had previously tightened Arizona's access to gas in order to close the gap between supply and demand in the state, thereby preventing gas prices from sinking even lower than they did in late 2008.
Donati said this move caused an unforeseen price jump in January after one of the state's biggest gas distributors, Flying J, filed for Chapter 11 bankruptcy.
"Flying J was a major supplier of fuel to the state, and that caused gasoline inventories across the state to tighten," Donati said.
"The west line really had to step in and balance out the (supply shortage), because previously the east line was supplying about 80 percent of the fuel."
Donati said the other factor influencing Arizona's gas prices is the simple difficulty local retailers have making a profit off it.
A new report released Feb. 19 by the Oil Price Information Service found that Arizona ranks dead last among the continental U.S. in terms of gasoline profit margins, with retailers losing on average 17.4 cents for every gallon of gas sold. The report found that while retailers are still charging about 18 cents higher than wholesale for a gallon of gas, they are losing 36 cents to state, federal and local taxes, as well as shipping costs.
Four Arizona cities made the report's list of the top ten least profitable metro areas in which to sell gasoline, with Phoenix-Mesa and Tucson topping the list at negative profit margins of 24.4 and 20.6 cents a gallon respectively.
Yuma and Flagstaff also made the list, with losses of 5.6 and 1.5 cents per gallon.
"People get angry at the gas station, but they don't realize that the station itself is making the least profit in terms of selling gasoline," Donati said. "A lot of gas stations actually make very little on gasoline, but they use it as a loss-leader."
Donati said many stations will drop their gas prices as low as they can to get customers to come into the store, where they make up the difference by buying snacks and other sundries. But with the nation undergoing a recession and consumers much more careful with their dwindling discretionary income, such stations are feeling the pinch like never before.
"If you look at an independent station right now that only sells gas and doesn't sell a lot of things inside their store ... those stations will be selling their fuel for a lot more money," Donati said. "They have to raise their price at the pump even more so than stations that sell those convenience items."
So long as retailers continue to struggle to make ends meet, Donati believed it was unlikely local prices would drop back to December levels anytime soon.
"Given what retail profit margins are, it's unlikely, but we're going to continue to monitor it," she said.
"They're pretty much doing all they can to recoup their costs right now."