Nowhere to go but up: Gas now averages $3.036 a gallon
UCAN News
Today, UCAN's Gasoline Project is reporting a regional San Diego average of $3.036 a gallon as oil reached a new record high of $84 a barrel. This is the first week since July that regular unleaded prices have been above $3 a gallon in San Diego County.
Last week we noted that local gas prices were undergoing market psychosis because gasoline was remaining "stubbornly" below the $3 a gallon mark. This, despite the fact that oil has reached nosebleed levels ($84 a barrel) in New York today, and that four Los Angeles area refineries, representing about 1/3 of California's gasoline supply, had reported shutdowns and production problems last week.
Normally, those two conditions, plus an unstable spot market (which is reacting to the refinery problems) would send prices screaming, but the expected price hikes have happened slugglishy.
Currently, UCAN estimates that the retail price an unbranded independent dealer must charge to break even on a gallon of gasoline after paying taxes is $3.08 a gallon - 4.4¢ more than the current regional average. This effect, known as a "rack inversion*" usually indicates that prices are in an upswing and can only go up.
We predict more price hikes, despite the fact that consumer demand for gasoline dropped by almost 1/2% last month.
This is the first time in 12 weeks that gasoline prices have been above $3 a gallon on average in San Diego. Last year on this day, gasoline cost $2.48 a gallon, and NYMEX oil cost $57 a barrel ... $26 a barrel less than what it was trading for today.
* A rack inversion occurs when an unbranded independent dealer's breakeven retail price is more that the retail prices charged by brand name dealers. Currently, the average price of gasoline in San Diego is 4¢ less than an independent dealer can BUY it for after state taxes.
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Politics & Oil Prices / devaluation of the U.S. dollar
In our next newsletter, we address the importance of politics (hopefully, you've signed up to get it). There is a point though, where overwhelming market forces come to bear. Perhaps the most overwhelming is the fact that the U.S. dollar is grotesquely undervalued compared to the Euro. You could even argue that the price of oil hasn't really increased, rather, the dollar has decreased so much in value that we have to spend 40% more to get the same thing. The government has been very deceptive about inflation numbers - some experts think that right now the USA is seeing inflation rates as high as 10%. Ugly stuff. So where do the politics come in?
When oil prices reached the equivalent of $90 a barrel in the late 1970s, Jimmy Carter called it "economic malaise." The fuel crisis created an economic crisis, which is where we are headed as oil prices reach new, higher, nosebleed levels. The cost of oil drives the cost of everything else - food, housing, and energy. All of those sectors are oil dependent businesses.
What happened to the Politics?
Back in July and August we were experiencing and drop in gas prices without the matching drop in prices of crude. As I recall the reason for this awkward inversion of pricing was attributed to politics. The increases began just before Labor Day when we could expect a slight bump in prices due to the holiday, but it hasn't stopped. The price of crude and gas have continued to climb. What is the driving force in the world market that's causing this? I don't hear of any great agreements within OPEC and with our dependence on foreign oil forever tied to that market I'd expect to hear more about their reduction in production or some other such maneuver. Can we expect any relief? I know the price of a gallon of gas is tied to the "Share of the Market" in the broader picture and not the cost of bringing a gallon of gas to the pump. And politics could only hold the price so much. What is the underlying cause? Speculators? Are we paying higher prices at the expense of making the rich get richer? How can we defeat them? Let's find a way to take the manipulation of prices out of the hands of speculators and we may find a true fair market price.
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