SAN DIEGO --

Today UCAN's gasoline survey at www.fueltracker.com reported a regional average of $2.988 for regular unleaded, an increase of less than 2¢ over last Friday's average, but in light of recent events, the increase is modest.

The new price defies logic and historical trends. Earlier this year, the current combination of high oil prices, a panicked spot market for gasoline, and massive problems at local refineries would have been used to justify prices of $4 a gallon or more at the pump. Yet it hasn't happened. Typically, the oil industry has claimed that gasoline prices will jump because of any one of the following three excuses:

1) High Oil prices -
Last Thursday, NYMEX crude oil flirted with $83 a barrel - A record high.

2) A volatile Spot Market -
The cost of surplus gas increased by 15¢ in less than 48 hours this week.

3) Problems with refineries -
Four California refineries representing 1/3 of the state's gas supply went offline this week.

Let's examine each of these factors individually, because taken separately, each of the three events outlined above would normally be used as an excuse for higher gasoline prices.

1) High Oil Prices: Oil prices are up 50¢ a gallon, since May 9, yet gas prices have dropped 50¢ a gallon since may 9.

On May 9, 2007, gasoline in San Diego reached an all-time record high of $3.50. At that time, the price of oil was $61.55 a barrel, or $1.46 a gallon. Today, San Diego gasoline costs 50¢ less per gallon, yet  the cost of oil is at $80 a barrel, or about $1.90 per gallon.

Put another way, oil costs 50¢ a gallon more, while gas costs 50¢ a gallon less.

Clearly the cost of oil has very little to do with the price of gasoline, yet for years, the oil industry has told the public that high oil prices mean high gasoline prices. Historically, price hikes on the NYMEX have translated into immediate increases at the pump, yet it is not happening now.

2) A volatile Spot Market: The spot price of gasoline jumped 15¢ in 48 hours.

The Los Angeles Spot Market is where California refineries buy and sell their surplus fuel. When there is less fuel available, the price of this spot fuel increases. Between Tuesday and Thursday, the price of gasoline on the LA Spot market surged from $2.19 a gallon to $2.34 a gallon. Normally, a surge like this would result in immediate price spikes on the street, but the price spikes haven't happened.

3) Refinery problems: This week, four refineries had problems.

Normally, when one refinery in California has a problem, it causes serious jitters on the spot market. On Wednesday, October 3, we saw not one, but FOUR refineries shut down in the Los Angeles area, representing more than 1/3 of the state's gasoline production, yet retail prices have barely moved.

Here is a list of the refineries with problems this week ...

Chevron, El Segundo CA, 13.49% of California's gas supply, shut down October 3. (Reuters )
Conoco Phillips, Wilmington CA, 6.9% of California's gas supply, shut down October 3. (CNN)
Exxon Mobil, Torrance CA, 7.73% of California's gas supply, shut down October 3. (Reuters )
Valero, Wilington CA, 4.2% of California's gas supply shut down October 3. (Reuters )

Market psychosis.

Normally, California's gas prices are "sticky" meaning that when the price goes up, it tends to stay up, even when the market is flooded with surplus gas. Right now, what we are seeing is "reverse sticky." The reason behind the unusually low prices is that California refineries have been limiting their profits. 

The pie charts below show the cost breakdown for a gallon of gasoline on May 9, when gas in San Diego cost $3.50 a gallon on average, compared to September 29, when the average price of gas was $2.97. Look closely, and you'll see that on May 9, 2007, California refineries were making four times as much money on a gallon of gasoline as they are today (source).

Recently, industry analyst Tom Kloza, of OPIS, the highly respected Oil Price Information Service, commented that the United States gasoline market has become "manic-depressive," but from where we sit, it is downright psychotic.