It is based on Replacement Cost of the gasoline.

Assume you run a station with 10,000 gallons underground and you have paid $3.00 a gallon for that inventory. You have $30,000 invested in that.

If you know that gas is going to start jumping in price in the next week to ten days, you can figure the public is going to have a 'run' on your supply and you are going to have to fill the tanks sooner than usual.

So, the price to re-fill is going to cost you $3.25 a gallon or, $2,500 more.

If the strategic reserve releases or some other OPEC move causes the price to drop and gasoline prices drop... how are you going to cover your losses if that stuff in the ground that you own is now worth less than you paid for it?

Or it just may drop down so that in order to be competitive in the market you have to sell it at a price that may not be less than you paid but is still too low to cover your overhead on operations.

When the price begins to drop demand eases off but when it starts to rise, demand increases. This can put the retailer in a real squeeze if he gets stuck with high priced stuff underground.