How Low Could Arizona Gasoline Prices Actually Go During COVID-19?

You may have seen that the price of oil futures plummeted into negative territory yesterday for the first time in history. As the Financial Times put it, the coronavirus has left the world “awash with oil and not enough storage capacity — meaning producers are paying buyers to take it off their hands.”

Bad news for oil producers, very good news for people with access to gigantic oil storage containers, pretty good news for Mother Earth.

But what about regular old gasoline consumers here in Arizona? What does it mean for us?

Prices vary across the state, but the average gallon of regular gasoline in Arizona as of Tuesday cost $2.21. That’s down nearly a dollar from the average this time last year.

But it’s also way higher than the average price a couple of states over in Oklahoma, where it’s $1.39, or Wisconsin, which at $1.22 is enjoying the lowest prices in the country. Arizona currently has the seventh-highest gasoline prices in the nation, on average.

Working against lower prices in Arizona is the fact that the state doesn’t have any oil refineries. Its gasoline supply arrives via one of two pipelines: the East Line, which comes from Texas, and the West Line, which comes from California.

Most of the gas consumed in Arizona is from California, said Aldo Vazquez, a spokesperson for AAA Arizona. And California is, well, expensive.

“Transportation costs and taxes are higher in California, so historically we tend to see a sort of mirroring in our gas prices with them,” Vazquez said. “They go up, we go up. They go down, we go down.”

Another variable: Gasoline prices aren’t regulated in Arizona, meaning retailers are free to charge whatever they think the market will fetch, provided they don’t engage in price-fixing or other anti-competitive behavior. That's why the price at Costco might be different than what you see at your local Circle K.

Some Arizona counties also attach air quality restrictions to the gasoline sold within their limits, which can drive up the price. That's why gas is generally more expensive in Maricopa County — which has Cleaner Burning Gasoline regulations, as they're called in Arizona — than in Pima County, which does not.

But what if the coronavirus pandemic extends deep into the summer months, and people continue not flying on airplanes and not driving to work, and the glut of oil continues to grow? Could Arizona be seeing Wisconsin prices? Could we be filling up pickup trucks for $15?

Daniel Scheitrum, an assistant professor in the University of Arizona's Department of Agricultural and Resource Economics, said gasoline and diesel prices “may come down slightly, but I wouldn't expect a huge reduction in fuel prices as a result of this phenomenon.”

He added: “Refiners still incur costs to transform crude oil into vehicle fuel, as well as costs to transport products to retail stations. Additionally, fuel taxes will remain unchanged.” (Arizona’s fuel tax is currently 18 cents per gallon, though recent legislative efforts have aimed to increase it.)

Vazquez said that, based on the current COVID trends, AAA expects gas prices in Arizona to continue to decline, though perhaps not at the rate seen in many Midwestern states. 

"I don't expect it to get below $1 here, no," he told a hopeful reporter. "I think that's wishful thinking. But we are dropping, and dropping pretty fast."