Volatility of Gas Prices in California

I drive by two adjacent gas stations every day on my way to work. There is a Chevron station right next to a Shell station. I can never figure out how that works for either of them. Why are there two stations on that corner where one would be just fine?

As I drive by, I can monitor the price of gas as it fluctuates. Usually, the two stations are within a penny or two of each other, which makes sense.

In the last few days I noticed a huge shift, illustrated in this chart:

Gas Price Volatility

How can the price of a commodity like gas jump 20% overnight, as it did from Wednesday to Thursday at Chevron? Then you can see how Shell caught up, but not quite, on Friday. Needless to say, the Chevron station was completely empty on Thursday. After filling up a tank at Shell vs. Chevron, the difference in price would be about $8, enough for a lunch special at Pickup Stix.

My question is: What kind of market is this, where a commodity like gasoline can jump 20% in a day? Isn’t the market intended to buffer us from these kind of fluctuations? Something makes me suspicious that we’re subject to some kind of manipulation.

I still remember those days when Enron manipulated the power market and we experienced brown-outs and enormous price spikes for no discernible reason in California. We later found out that some of the “smartest guys in the room” at Enron manipulated the market and duped us all, millions of us. They sucked money out of our wallets while the sucking was good. In the aftermath, one person committed suicide (Baxter), a few people (Skilling) went to jail and none of us got our money back. Thousands of shareholders lost their life savings. That was Enron.

What’s going on with the gasoline market in California?

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