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2011 will begin with record high gas prices.

Normally gas prices come into the New Year like a lamb and then roar like a lion in May. Not this year.   In 2011, they're roaring out of the gate with a two-year record high.

Southern California is now paying the highest gas prices in more than  two years, setting another record high today of 3.303 a gallon for the region and a current average of $3.33 a gallon for San Diego.

So what's in store for next year? Typically, gas prices can swing as much as 90 cents, on average during an average year. That means that we could easily see a return to prices of $4 a gallon later this year, but it also means we could see deflation in gas prices, too, with a potential for prices in the low $2 range. 

Lower prices and deflation are unlikely, because of the prospects of a weak dollar that buys less oil. Right now the oil in a gallon of
gas costs $2.13. For prices to drop by more than a dollar, we would need to see oil prices collapse to the $60 mark (about $1.47 a gallon).

And it could happen.
In 2008 gas plunged from $4.60 a gallon in Southern California to  $1.90 on average by January 1, 2009.

In the short term (between now and Monday) we should see a slowdon in price hikes over the New year's holiday. We expect to see some of the unbranded Indies to be offering deep discounts of up to a dime a gallon, while the majority of stations will hold  firm or raise prices slightly.

This "push-me-pull-me" effect means that cash buyers who are willing to buy unbranded gasoline could benefit, even as the major brands continue to raise their prices.