BEGIN San Diego 12:43 PM October 7, 2010 ~~x~~~
"CAR"diac arrest - expect sticker shock
GAS - Buy, Buy, Buy, Buy
DIESEL - Buy, buy, buy, buy
OUR PREVIOUS PREDICTION:
We said gas prices would climb two to six cents for diesel and RUL. We also predicted that regular unleaded would cost more than $3 a gallon on average by today.
Prices will climb from two to six cents for all grades on average (that's diesel and regular).
Gas prices climbed only 2¢(the lower range on our prediction, so we are overdue for a big jump over the weekend).
Diesel only moved 1.2¢, but that doesn't convey reality on the ground. The prices are screaming up on the street - see analysis.
For the first time in a nearly month we have seen gas prices surge above the $3 mark and it isn't over yet. The spot market price for surplus gasoline has jumped by 18¢ in the last week and 7 cents since Monday.The "spot" price is a good bellwether for future price movements.
The wholesale "rack" prices charged to brand name dealers currently average about $2.24 a gallon, which gives brand name dealers a "break even price of around $2.95 a gallon after taxes (average markup for a dealer is between 5 and 10 cents a gallon). Meanwhile the average price charged to Independent unbranded dealers they're the guys who sell gas at cheap prices) is $2.31, which means they have to sell gas for about $3.02 a gallon to break even.
This phenomena is called a "rack inversion." It is what we predicted last week when we talked about "inversion perversion"
Bottom line - in order to stay competitive in the market, the Indies must lose about a penny a gallon just to charge the average price. This means prices are going up.
It is the same story for diesel, except worse. Diesel has climbed 25 cents a gallon in the last week on average at the wholesale level.
Insiders are blaming the price hikes on the shut-down of a Tesoro refinery in Anacortes Washington and an explosion at the massive according to Reuters.. Supposedly the refinery will be back online in a few days, but in the meantime, expect sticker shock when you tank up.