Gas prices drop in San Diego and California over Labor Day Weekend.

UCAN's authoritative survey of Southern California gas prices shows that prices have actually dropped over the weekend, and are expected to fall further in the next few days. According to UCAN's gasoline analyst, Charles Langley, "It looks like the fears about Gustav turned out to be nothing more than hot gas." 

Langley predicts that for the short term gas prices will remain below $4 a gallon.

Gas prices in San Diego have dropped 1.3¢ over the weekend and are expected to stagnate - or even decline a few more pennies by Friday. UCAN's survey, taken this morning, shows an average price for regular unleaded of $3.86 a gallon - down a nickel in the last seven days. Diesel currently averages $4.315 a gallon, down about a penny over the weekend, and down about 4 cents in the last week.

This trend is not what most analysts expected.

At least 15% of the USA's entire refining capacity has already been shut down to prevent damage from Gustav, and almost 50% of the USA's domestic oil supply is threatened by Gustav. Normally, prices would skyrocket, but four factors are lubricating the continuing slide in gas prices:

First and foremost,  President Bush says that he will release oil from the Strategic Reserve and the Saudis have said that oil is overvalued. Both are 800-pound gorillas in global oil markets. This morning, oil was selling on the Globex for as little as $110.60 a barrel (bbl) for October Delivery - a decline of $6.65 from $117.25 a barrel when the markets opened at 2:30 yesterday. On a per gallon of gasoline basis, this oil price results in a per gallon price cut of almost 16 cents. 

SECOND, Hurricane Gustav has fizzled. Despite waves threatening to breach the Industrial Levee in New Orleans, Gustav's force has been downgraded to a relatively benign Category 1 Hurricane ... the lowest possible rating.

THIRD:  "Demand Destruction..."   Reports show that gasoline inventories are above normal at a time when consumers are using less gas.

FOURTH:  Pollution-fighting fuel blends. September is the time of year when refineries switch over to a different pollution-fighting fuel standard. The winter blend gets 6% more gasoline out of a barrel of oil. As a result, refineries can increase gasoline output while actually processing less oil. 

Finally, unlike Hurricane Katrina, the Federal Government has been in a state of action instead of inaction. The EPA has relaxed fuel standards for many Texas counties, making it easier to supply potentially gas-strapped regions.  And unlike 2005 when Katrina blasted the Gulf Coast, President Bush has not delayed releases of oil from the Strategic Petroleum Reserve. The president's 2005 decision helped drive oil and gas prices to new, and at that time, unheard of prices. In addition, Mr. Bush continued pumping oil into the reserve even as oil prices skyrocketed. This aggressive buying of oil helped spur barrel prices to nosebleed highs.

Now, the mere threat of a release of oil from the Strategic Petroleum Reserve has helped depress global oil prices even during a time of crisis and potential shortage. It's about time. In the 1990s, President Clinton dumped fuel from the SPR to keep global oil prices under $35 a barrel, and it worked.

That's why it is called a "Strategic Reserve."  It is likely that we will see more of this type of "strategery" from the Bush Administration until the Presidential Elections on November 8, 2008. After that, prices could very well increase.