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4-Day Gougecast, 10-04-10

x~~~~x~~~~x~~-~ BEGIN San Diego  12:08 PM October 4, 2010

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             Inversion Perversion - back above $3 by Thursday?
             
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GAS        - Buy, Buy, Buy, Buy
DIESEL  - Buy, buy, buy, buy

OUR PREVIOUS PREDICTION:

We said gas prices could drop a penny, but strongly indicated that they would climb as much as 3.5 cents.

We said diesel diesel would likely climb from 1/2 to four cents.

TODAY'S PREDICTION:

Prices are going up from two to six cents for all grades on average. In many areas this means that gasoline will once again cost more than $3 a gallon on average.

WHAT HAPPENED:

Gas prices climbed 3.1¢
Diesel screamed up by 6.5¢ - see analysis.

COMMENTS ANALYSIS:

We haven't seen a logical reason for the blast-off in high wholesale prices this week, other than a jump in oil prices, and as we observed on Thursday, oil prices are on the future's market while the spot price of gasoline, which has climbed 11.2¢ since Thursday, is the "on the spot" cash price for gasoline purchased right now.

On Thursday we said this:

"We are close to a rack inversion where the price of surplus gasoline costs more than the price of brand name gasoline at the wholesale level. If this keeps up, prices will also go up even though there is no shortage of supply."

That's exactly what happened. The cost of surplus gasoline that is sold on the spot market is rising. The stations that buy this gas are the unbranded and independently owned stations. These stations tend to be much more competitive, but right now, their gasoline - which is usually purchased at a discount - costs more than the wholesale prices that are being charged to brand-name dealers.  In addition, oil moved out of the $70 to $80 a barrel price box and solidly into the $80 plus range, nearly hitting $82 this morning.

The huge spikes in diesel prices bely an even bigger price on the street - rememeber, we report an average price, and many brand name and unbranded dealers jacked up their street prices by 10 to 15 cents a gallon over the weekend.

RUL prices for Indy retailers have jumped 11¢ in seven days, on average, while the average wholesale price at brand name stations is up 3.4¢.

What does it all mean - Well, gas prices are going to go up ESPECIALLY at the smaller stations. We may actually see some

cost-cutting by major brands, but this will be done with an eye to inflicting pain on those very independent dealers that dare to compete with the major brands. 

Consumers buy less gas in the rain, but the publicly available numbers show huge builds in gasoline inventories, so clearly, supply and demand are not a factor in the coming price hikes.

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San Diego CHANGE Monday  Thursday Monday 
    10/4/2010 9/29/2010 9/27/2010
SD RUL $0.031 2.986 2.955 2.952
SD DSL $0.065 3.277 3.213 3.184

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All Regions  
Monday  Thursday Monday 
CHANGE 10/4/2010 9/29/2010 9/27/2010
0.0308 San Diego RUL 2.986 2.955 2.952
0.0646 San Diego DSL 3.277 3.213 3.184
0.0030 Los Angeles RUL 2.961 2.958 2.960
0.0380 Los Angeles DSL 3.242 3.204 3.192
(0.0030) Orange Cnty RUL  2.959 2.962 2.966
0.0430 Orange Cnty RUL  3.226 3.183 3.170
(0.0010) San Bern RUL 2.933 2.934 2.929
0.0420 San Bern DSL  3.225 3.183 3.179

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