Gas Spy eye Home Divider1 Gas Spy Login Divider2 Become a Gas Spy Divider3 Crude Reality

Could driving rain drive down gas prices?

In the last 21-days, the spot market price for surplus gasoline
has increased by 25¢ ... more than a penny a day, constituting a 
major move. If this trend continues, the average gasoline price
will be poised to break the $4 mark by Monday, March 10 in 
Southern California. For more information or background, contact
Charles Langley at 858-752-4600
Here are the three reasons prices are going up right now: 
1) Refinery turnarounds: All refiners in the State of California
were required to shut down and reconfigure to produce cleaner 
burning formulations of gasoline for the summer driving season by
February 14. These shutdowns cause supply disruptions. 
2) Less fuel produced per barrel of oil.  The summer blend costs
more because it actually uses more oil per gallon of gasoline.
The cheaper additives in winter blend gasoline actually evaporate
in warmer weather. The summer blend does not evaporate into the 
air as easily ... but it requires 6 to 10% more oil per gallon
of gasoline. At current domestic oil prices, this increased cost
accounts for about a 24¢ per gallon increase in the cost of the oil 
per gallon of gasoline manufactured. This explains the 25¢ increase
in prices we've seen, but what about future price spikes? 
3) Increased demand. Summer tends to bring increased demand for 
gasoline which can increase the price. However, for years now,
gasoline demand has been dropping ... read on. 
Here are the factors that will ameliorate high gas prices in the 
short term
While the current price spike can be explained in terms of increased
costs due to State-mandated pollution requirements, the additional 
increases in fuel costs that we will see in the coming weeks can't be 
explained as easily.
For example, demand for gasoline in the California market has 
declined year after year since 2008. California now boasts more Prius 
Hybrids than any other state. And even though SUVs are more popular, 
than ever in California, the SUVs that are being driven now are 
significantly more fuel efficient.
Second, while refineries claimed that they couldn't produce enough
gasoline for the California market in the past, the new reality is that many
of those refineries are now exporting surplus gasoline overseas. And 
because much of this gasoline is being "dumped" in Far-East markets, 
the risk of losing money due to changing market conditions is very
high. While these exports keep gasoline supplies tight (and prices high)
on the West Coast, they also expose major refineries to significant
risks. What's more, even the aggressive exports aren't fully eliminating
surplus inventory: According to OPIS, the Oil Price Information Service,
the current supply of fuel in California is healthy -- there are no 
In addition, we are seeing heavy rains in Southern California for the
next few days. Californians are not accustomed to seeing water fall 
from the sky. What other parts of the country call a "Lady Rain" or 
heavy mist is perceived as a "storm" by most motorists which tends to
suppress gasoline use and gasoline purchases in the short term.
Yet despite these factors, gas prices will continue to climb through 
Monday. At the wholesale level, prices have increased by about 4¢
since last Monday, and 12¢ on average in the last week. 
Retail prices have not kept pace. Expect to see increases of 1 to 5¢
a gallon over the weekend, and possibly more if the predicted rain 
storms do not arrive. On the other hand, if we see heavy rain, expect
to see modest increases by Monday, breaking the pattern of penny-a-day
increases that we have witnessed since February 6.