When San Diego's retail gas prices peaked at $4.72 a gallon
on October 8, the average price of wholesale gasoline was
$1.00 more per gallon than it is today.
But even though the wholesale price has dropped by $1.00 on
average, today's retail price is $4.31 - a drop of only 41¢.
In other words, wholesale prices have dropped at a rate of
about 4¢ a day while retail prices have only dropped 2¢ a day.
In the last week, retail prices dropped by 25 cents, or at a rate
of 3.6¢ a day, so retailers are catching up on their discounting
as prices drop, but there is still a lag, and the retailers are
catching up.
catching up.
There are four reasons why gas prices are plunging:
1) HUGE BUILD IN OIL INVENTORIES - Crude losses extended to a
fifth straight NYMEX session and tallied just shy of $5.50/bbl,
or a 7% drop in a week's time as of Wednesday. The front-month
U.S. crude contract has come under pressure as country-wide
inventories continue to expand each week
2) GASOLINE DEMAND AT SEVEN MONTH LOW. The Department of
Energy is reporting the lowest demand figures since March 16.
Energy is reporting the lowest demand figures since March 16.
3) HUGE BUILD IN CA GASOLINE SUPPLIES -- statistics released
yesterday by the California Energy Commission show that
California blend gasoline stocks increased by nearly a
million barrels to 5.781 million barrels last week.
4) FEAR - the public, political, and law enforcement outcry
over the sudden record breaking price spike has made the
refineries nervous. There were excuses, but not good reasons
for the so-called "perfect storm" in gas prices that resulted
in the highest inflation-adjusted fuel prices in california
in the last 94 years. And with the first three factors in play
above, California refiners should be nervous.
BOTTOM LINE: Gas prices will continue to plunge at a rate of at
least a penny a day, perhaps as much as three cents a day.