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Gas prices at highest level for any February on record.

At $3.77 a gallon, San Diego's gasoline now costs more than any February on record. The current high prices show that we may be on track for breaking the all-time record high of $3.64 a gallon in June of 2008.  But even if we don't break the all-time record, chances are excellent that you will spend MORE on gasoline in 2012 than you did in '08 because of sustained high prices.

2008 was an outlier year in terms of gas prices. The year started with San Diego gas prices well below $3 a gallon. Then, prices skyrocketed to $4.64 in June, and collapsed below $1.70 a gallon by December of '08. This was because of extreme volatility on global oil markets, where companies like Goldman Sachs and Morgan Stanley were able to successfully game oil markets using scare tactics and high-speed computerized trading programs to drive the price of oil up to $147 a barrel.

You can actually buy olive oil for less money than crude oil at $150 a barrel, so common sense would dictate that $147 a barrel for crude is a ridiculous price. In fact in June of 2008, a gallon of milk was cheaper than a gallon of diesel fuel.  Nevertheless, Goldman Sachs continued to predict a booming economy with official projections that oil would soon cost $212 a barrel.

Naturally, the market collapsed. Oil plunged to record lows.

So what's different now?

This time we will see high prices despite relatively affordable oil.  In California, the reason is two-fold: First, our refineries have cut back production, which restricts the supply, which drives up prices, and second, local refineries are aggressively exporting fuel (especially diesel) overseas to keep supplies tight and costly on the West Coast.

Nationally, the East Coast could get hit especially hard with the announced closure of two major refiners that could potentially restrict suppllies by as much as 50% on the Eastern Seaboard (See the LA Times article where the author is quoted).  

This morning, Tom Kloza of the respected Oil Price Information Service, predicted in USA Today that gas prices will likely reach an average price of $4.10 a gallon nationally by Memorial Day, May 28. We should be so lucky in San Diego: Our prices typically cost 29¢ more per gallon than the national average.

The bottom line is that 2008 was a bad year, but 2012 will be worse. I guarantee it.

We may not break the all-time record high, but if you haven't changed your driving habits, your annual fuel bill will cost more than it did in 2008. Much more.