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4-Day Gasoline Gougecast for 9-23-10

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                  Gas prices will drop. Diesel will stay flat or climb 9-23-10
             
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OUR PREVIOUS PREDICTION (Monday) 

We said gas prices would reverse course and climb at least half a cent. We said diesel would stay flat or move a penny in either direction.

TODAY'S PREDICTION (Thursday)

Gas prices will drop at least one cent and perhaps as much as 5 cents by Monday.
Diesel will likely climb zero to three cents with a slight chance of a half cent price cut.

WHAT HAPPENED:

Gas went down 4/10th of a penny in San Diego, while diesel climbed 1.5¢ as predicted.

We got gas price movements WRONG on our Monday prediction [ GASP! ], but not by much, because gasoline prices actually did climb - on average - about a penny in San Diego and all across Southern California exactly as we predicted, then reversed course and started dropping Wednesday morning, so our timing was off by about 18 hours. What's interesting is that most of the cost-cutting action came from a narrow segment of gas stations - the unbranded independents. Our survey is biased toward the Indies locally, so the price cut shown is almost an artifact when compared to the rest of Southern California (see last table - they all went up).

Dealers who run brand name stations aren't seeing big price breaks because their refineries have put the brakes on cost-cutting. In the oil patch, everybody hates a cost-cutter. However, independently owned stations are operating at healthy margins, and they can afford to cut costs. We predict that they will keep doing so over the weekend, dragging the average price down with them, and ultimately forcing the majors to lower their prices, too. This means lower prices. But there are other factors conspiring toward lower prices this weekend and in the long term.

COMMENTS ANALYSIS:

Right now every price indicator on the market is pointing "thumbs down" for gas prices.

Here are 5 reasons why prices should drop through the weekend.

1) On the West Coast, supplies of stored gasoline are at a four-month high. Bad news for refiners looking to raise prices based on fears of shortages.

2) Gasoline demand is down. Typical for this time of year. In addition, California compliant winter fuel blends require at least 6% less oil to manufacture our pollution-fighting gasoline, creating yet more supply. 

3) Gasoline on the New York Mercantile Exchange (NYMEX) dropped even though hurricane fears tend to push prices higher. This suggests that traders are buying gasoline based on market fundamentals, and the fundamental truth is that people aren't buying gasoline. Traders are more worried about real depressions than tropical depressions.

4) Oil futures backed firmly away from $80 a bbl this week, disappointing traders and dampening speculation on gasoline futures markets.

5) Oil inventories are up. The market expected that there would be less oil in storage and the builds in the last week according to DOE were frightening - over 20 million barrels.

Bottom Line: There is more supply, and less demand. Barring war, famine, plagues of locusts, etc., lower prices are inevitable.

 
Thursday Monday  Thursday
CHANGE 9/23/2010 9/20/2010 9/16/2010
(0.0041) San Diego RUL 2.964 2.968 2.977
0.0147 San Diego DSL 3.185 3.170 3.166
0.0110 Los Angeles RUL 2.962 2.951 2.968
0.0060 Los Angeles DSL 3.193 3.187 3.188
0.0110 Orange Cnty RUL  2.968 2.957 2.959
0.0010 Orange Cnty RUL  3.170 3.169 3.165
0.0050 San Bern RUL 2.929 2.924 2.941
0.0090 San Bern DSL  3.177 3.168 3.171