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At $3.25 a gallon, gas prices are at a new record high for 2010.

This morning San Diego gas and diesel prices broke another record for the year 2010, and there is a good chance prices could rise as much as a seven cents a gallon over the holiday weekend. Not since October of 2008 have prices been this high. 

Right now we are seeing a rack inversion of at least 7¢ on average.

We have a saying that "Driving rain drives down gas prices," because it suppresses demand. This is because people in California don't like  getting wet when they fill up, so they delay buying gasoline. Rain creates a pent-up demand backlog, which in turn creates a surplus, which drives down the "on the spot" cash price for surplus gasoline. 

BUT, rack inversions drive up prices

Here's how a rack inversion works: 

The term "rack" refers to the price a brand-name dealer pays for his or her gas. This price is set by the dealer's refinery. Unbranded dealers, who tend to offer discounted gas prices literally buy their surplus gas "off the rack" on the spot market where gasoline usually costs about a dime less per gallon.

Except during rack inversions.

In a rack inversion, the cost of fuel to an independent dealer costs more than the wholesale cost to a brand name dealer. 

Goodbye competition. Hello, price hikes. 

The holidays are always tricky in terms of demand, but as dealer tanks run dry, the Indies will be forced to buy gas at a higher price than  what their branded competition is paying. To complicate matters further, people drive less over the Christmas Holidays, which means that demand is down ... this creates an even bigger backlog of fuel. 

Yet the fact remains that we are seeing a big rack inversion. The average is only 7¢, but some refiners have hiked their spot prices by as much as 14¢ a gallon since Monday, and a total of 18¢ a gallon since last Friday.

Our call - play it safe and fill up, or you could get sticker shock next Monday.  The major brands saw rack increases of ten cents a gallon in the last seven days on average - most of it since Monday