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Retail gas prices expected to surge starting January 7.

We've said it before and we'll say it again - California's energy markets are easily gamed because of a lack of competition at the wholesale refinery level. One way to prop up a sagging market for gasoline is to issue a flaring event notice with the AQMD (South Coast Air Quality Management District). 

Flaring Event notices panic the spot fuel market. Spot market buyers are usually jobbers who supply independent gas stations. These jobbers buy surplus fuel for cash "on the spot."  A flaring event at a large refinery means that the refiner in question may be forced to go out and buy up barrels of surplus fuel to supply its own dealers. And when the price of surplus fuel goes up, the price of ALL fuel in Southern California increases.

Today, Exxon/Mobil and BP/Arco both reported flaring events, suggesting that there could be a shortage of fuel in the next few days. 

What this means is that we could see a significent spike in gas prices at the retail level soon. The reason for this is that the buyers of surplus gasoline tend to be unbranded independently owned gas stations or "Indies."  Most of the Indies sell gas at a discount, which forces the major brands to compete with them.

Flaring events create less surplus, which means that prices go up. Cynics call many of these unplanned flaring events as "lighting the smudgepots," because they usually have the effect of reversing a downward price trend at the wholesale level.

This is why UCAN has advocated for formal inspections of refineries during flaring events. A real flaring event can be deadly, but if the flares are being lighted to drive up prices, it is a type of market manipulation that should not be tolerated.

Until this morning wholesale gas and diesel prices in Southern California were dropping. Not anymore. Expect price hikes at the pump, and expect them to come soon.