Finally, gas prices are dropping!

Today, San Diego's sky-high gas prices dropped 4 cents since Friday, and almost 6 cents in the last week in reaction to huge decreases in the LA spot market. The current average price of regular unleaded gasoline in the county is $3.268 per gallon, according to UCAN's gasoline survey at fueltracker.com.

Traders on Los Angeles spot market for raw gasoline (CARBOB) have chopped the per gallon selling price by 50 cents since January 2. Spot market gasoline is generally surplus fuel that is eventually sold to major oil companies, and fuel brokers and jobbers. The fuel brokers and jobbers then re-sell the gas to unbranded independent gas stations. The independent stations tend to be the most aggressive competitors in San Diego. In fact, our research has repeatedly shown that communities with a large percentage of independently owned stations tend to have significantly lower prices.

To understand what a 50-cent-a-gallon drop in the spot market means to consumers, it helps to look at UCAN's estimated breakeven for an independent dealer. Our calculations show that on January 2, 2008, an independent dealer had to charge $3.31 a in order to break even on a gasoline sale. At that time, this was a profit-starved diet because the average price for a gallon of San Diego gasoline was $3.32 a gallon.

But now that the spot market is dropping like a thick brick, the breakeven mark is at about $2.77 a gallon. Given the fact that most gas stations only make a margin of 5 to 15¢ a gallon, times are good for the Indies, who can afford to compete aggressively.

Our call: Once our local independent dealers recover from their recent starvation diet, we should start seeing scores of gas stations in outlying communities priced at $3 a gallon or less in the very near future.

Of course, this prediction assumes that the wholesale markets are operating the way they are supposed to: competitvely. In California, this can be a dangerous assumption.

LOCAL STATISTICS:

Today, gas was trading on the LA spot market for 15¢ less than the same gas in New York Harbor. Normally, raw LA gasoline costs 15 to 50¢ more than it does on the East Coast.

Last year on this day, San Diego gasoline averaged $2.589 a gallon, and oil was selling for $52 a barrel, with the oil in a gallon of gas costing $1.23.

Today, gasoline costs 67¢ more per gallon than last year, and oil costs about $92 a barrel, with the oil in a gallon of gasoline costing roughly $2.19

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