Oil prices are going down. The spot market price for gasoline is down. Your gas prices are going up.
Demand for gasoline in California has tanked every year for the last six years, yet prices continue to rise, even as oil prices drop. In 2008, for example, oil was selling for $147 a barrel, and California gasoline reached a record high of $4.62 a gallon. And last October, when gas prices in California surged to an average of $4.72 a gallon - the new record high - the same oil was selling for $89 a barrel.
In the last week, California gasoline prices are climbing at a rate of more than a penny a day even though the price of oil has dropped and the spot price for fuel is declining.
There is a term the oil industry uses for creating price hikes in California: They call it "Lighting the smudgepots," or in some cases, it is simply referred to as "planned maintenance."
Normally a price spike as severe as this one would be created by one of Chevron's annual, and highly profitable refinery fires. Last year, when Chevron shut down from a catastrophic fire that sent prices to a new all-time record high in California, the refinery continued to secretly produce gasoline while creating the perception of a shortage.
The first report you never heard about
don't have time to read the report, here is a quick summary.
That "shortage" which was caused by Chevron's failure to properly maintain its facilities, sent thousands of people to local hospitals. It also, conveniently, spiked California gasoline prices to a new record high of $4.72 a gallon at a time of year when prices should be dropping. This was a record-shattering superspike of 56¢ in one week -- and a highly profitable move for Chevron's other refineries. Morover, it was extremely profitable for every other refiner on the West Coast.
The second report
As a result of this fire, UCAN requested a State A.G. investigation of the price spike. Our request was rebuffed in a terse letter that appears to have been written or dictated to the Deputy Attorney General, Susan Spencer, by an oil company lobbyist.
So who is "lighting the smudgepots" now?
This week's price spike has been attributed to Exxon Mobil Corp's announcement on Thursday that several units at its refinery in Torrance, California, were shut down last Friday for "planned maintenance" lasting several weeks.
Announcements of refinery shutdowns have a tendency to reverse price decreases, yet curiously, the average wholesale price charged to independent retailers dropped 3.3¢ this morning. In addition, the "spot" price for surplus fuel, which is purchased for "cash on the spot" or "cash on the barrel head" has also dropped by almost 4¢ since our last report.
These factors strongly suggest that demand for fuel is down. The primary indicator of slack demand in California is the fact that the Exxon Torrance refinery supplies roughly 8% of all gasoline manufactured in California. If Exxon had not "suddenly" announced this planned maintenance, the probable effect would be massive wholesale price-chopping.
For major brands, the price of fuel has increased at wholesale by 3¢ on average, making a minimum price hike of three cents a gallon by Thursday for the regional Southern California average very likely.
Meanwhile, Chevron's massive Richmond refinery is back online this week after recovering from another shutdown. And for the time being, the rack inversions that have plagued Indy dealers are no longer "inverted," meaning that a typical Indy can undercut a typical branded station by about 2¢ ... and since the Indies have taken a terrible beating recently, it is unlikely that any of them will risk cutting prices soon.