Labor Day gas prices set new record

By Charles Langley, Manager, UCAN gas project.  Note: since 9AM this morning gas prices in San Diego have increased to $3.114 a gallon, up 6/10 of a cent since this morning.

UPDATED 9:00 AM LABOR DAY, SEPTEMBER 7, 2009 - Gas prices have climbed almost three cents over the weekend reaching a record high for the year 2009 of $3.108.  (Scroll down for statistics).

As we predicted last Thursday in the North County Times,  gas prices today have surged to a new record high of $3.11 a gallon in San Diego in reaction to aggressive trading on the Los Angeles Spot Market, where the cost of raw unblended gasoline was driven up by as much as 20 cents a gallon last week.

Even though the spot fuel market represents less than 5% of the gasoline sold in California,  the price of spot fuel has an almost immediate impact on the retail cost.

The "spot" price of gasoline is the price that refiners are charging for gasoline delivered "on the spot."  Typically, this is generic, surplus gasoline that the refinery can not distribute through its own retail network. Carbob, the fuel sold in California was in high demand yesterday as buyers purchased barrels in anticipation of heavy consumer demand over the Labor Day weekend. 

Because of the relatively small amount of fuel available on the spot market, and that fact that retail prices tend to follow the price of spot fuel, it makes the market ripe for exploitation by major refiners. Ten days ago, for example, UCAN documented that the market for spot gasoline was floundering (see our story Surplus Gasoline: Nobody wants it). We also explain how the spot market can easily be manipulated in this article.

Inversion perversion

Most brand-name retail gas stations pay a dealer "rack" price for their gasoline that is set by the refinery. However, stations that are unbranded usually buy their gasoline from jobbers on the open market. Because spot fuel is essentially surplus gasoline, it tends to cost five to 15 cents less per gallon than the gasoline from stations that sell the brand-name stuff.  On rare occassions, the cost of spot fuel is more than the rack price charged to brand name retailers. This phenomona is called a rack inversion.

Rack inversions are almost always accompanied by retail price spikes  

UCAN's numbers show that as of this morning, the spot price for gasoline has increased twenty cents since Tuesday morning - the largest move in the spot market this year. In addition, wholesale prices are the highest they have ever been this year, which could set the local record for the highest retail price of the year on average.

San Diego Statistics (average prices) from UCAN's gas project at www.fueltracker.com

San Diego average gas price as of 9:00 AM today, September 7 = $3.108 a gallon (note - at noon the average price had increased to $3.114)

Gas price September 4, = $3.055

Gas price, September 3, 2009 = $3.032

Gas Price last Friday, August 28, = $3.04

One Month ago - August 4, 2009 = $2.93

Two Months ago - July 4, 2009 = $2.975

Three Months ago - June 4, 2009 = $2.876

Six months ago - February 4, 2009 = $2.16

Lowest price this year = January 1, 2009 = $1.86

Price this day last year, 2008 = $3.84

Highest price this year, August 13, 2009 = $3.08

So what's next for gas prices? Bob van der Valk who writes our Crude Reality blog says gas prices will fizzle in October.

For more information, contact Charles Langley, UCAN Gasoline Project Manager at 619-696-6966 ext. 656