When a brand name gas station buys its wholesale gasoline it is charged the dealer "rack" price. The "rack" is the basic price that is adjusted depending on factors such as the station's location and volume of gasoline it sells.
In the last week, the dealer racks have gone up, on average, by 20¢ a gallon. That's terrible news for gas station owners and customers, but there is also another type of dealer called an "unbranded independent." These dealers get their gasoline at the "unbranded rack," and our research shows that the wholesale price for unbranded gasoline has surged an average of 28¢ in the last seven days. In addition, when we calculate the price these dealers must charge you after taxes before they add in their own markup, we arrive at an average cost of $4.05 a gallon.
What this means is that the dealers that are normally the cheapest and most competitive (the unbranded guys) are now unable to compete. When this happens it is called a "rack inversion." Rack inversions occur when the surplus fuel that supplies unbranded stations becomes scarce. At fueltracker, we've been watching gas prices for more than 13 years. Every time we have seen a rack inversion of a more than a penny or two, gas prices have always shot up on the street, and right now they're going up at heart attack levels.
It also means that the next time you buy gas you may be in for an unpleasant price shock. But don't worry, you're not alone. The dealer you buy your gasoline from is in shock, too.
In the meantime, we predict that prices will go up over Labor Day weekend from 4.5¢ to 9¢ a gallon.
Why? Because it is a rack inversion, and gas prices always go up when the rack is inverted. Always.
Jitters from Hurricane Irene contributed to the rack inversion, but the real issues were reported in a Bloomberg News article that reported problems with a leaking pipeline, refinery problems at Exxon/Mobil, a flaring incident at Chevron, and an ongoing flaring event at a Conoco/Phillips refinery. All of these factors have contributed to our prediction that gas prices will continue to surge over Labor Day.