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Crash or Burn ... Gas prices are dropping slightly prior to Labor Day, but will it continue?

By Charles Langley - With Labor Day just around the corner, gas prices have actually declined significantly at the wholesale level. Since August 5, the average wholesale price for gas in Southern California has  dropped by 19¢ a gallon, yet retail prices have only fallen 5¢ a gallon on average.

What this means is that the discounts being passed on to retailers are not being passed through to consumers. In addition, the U.S. Department of Energy is reporting that nationally, the stores of refined gasoline in inventory are the highest since 1983.

So what does all this mean? It means that gas prices are poised to either crash or burn.

In a normal competitive market, gas prices would crash and burn by at least twenty cents, but we don't have a competitive market in California. The result is that even though the industry is literally hemorrhaging gasoline, it can still exert considerable influence over the retail price.

One way to do this is to frighten the market with unplanned shutdowns and "flaring" incidents (otherwise known as "fires") at major refineries. When a refinery catches fire, the price usually goes up. In addition, a flaring incident can also prevent gas prices from dropping.

UCAN has called into question the legitimacy of many refinery fires in the last few years. We believe that not only should the refinery fires be reported, but that they should also be inspected by officials at CARB, the California Air Resources Board. 

UCAN uses gougeonomic theory to explain price movements in California gasoline. Gougeonomics is based on the premise that gasoline and oil markets are not competitive, and that the cost of oil and gas have little correlation to the law of "supply and demand."