US gas prices dip below $2, lowest in 3-plus years

[November 22, 2008]  HOUSTON (AP) -- Only four months after peaking at an unheard of $4.11 a gallon, the national average price for gasoline tumbled below $2 Friday, its lowest point in more than three years. Yet the global economic contrast between then and now could not be more stark.

On March 9, 2005, the last time gasoline cost less than $2, the Dow Jones industrial average closed at 10,805.63. After a huge rally Friday, the Dow closed at 8,046.42.

There was muted joy for consumers wading through an economy that's almost certainly in recession, with thousands of jobs being lost and mortgage foreclosures continuing to rise to record levels.

On the New York Mercantile Exchange, where oil futures seemed destined to breach $200 just a few months ago, pessimism was an understatement.

"At this point, all we can say with any degree of confidence is that crude oil ... will not trade below zero," trader and analyst Stephen Schork said Friday in a tongue-in-cheek analysis of the market's swoon.

Crude has been in free-fall, shedding two-thirds of its value since July, and gasoline prices have followed. Some say oil could be headed below $40 a barrel, and gasoline below $1.50.

Motorists in Independence, Mo., on Friday said they were paying $1.37 for a gallon of gas.

The pump price for regular unleaded fell 3.1 cents overnight to an average of $1.989 a gallon nationally, according to auto club AAA, the Oil Price Information Service and Wright Express.

The national average price fell nearly a dime in the past week and almost 90 cents in the past month. The average price for unleaded is now below $2 in 30 states, according to AAA.

"It's impossible to know exactly how low the price of gasoline will eventually go," AAA spokesman Geoff Sundstrom said Friday. "Households can, however, reasonably anticipate that lower fuel prices will be the norm throughout the rest of this year and probably into early 2009."

The Federal Highway Administration reported this week that Americans drove 10.7 billion fewer miles in September than a year ago, the 11th straight monthly decline.

But there's some evidence that motorists may be heading back to the pump in greater numbers as gasoline prices fall.

MasterCard SpendingPulse reported Tuesday that even though gas consumption last week was down 2.8 percent from a year ago, it was the smallest year-over-year decline in more than two months.

In Ohio, where gas prices fell to an average of $1.79 on Friday, Laura Duemey, a 48-year-old receptionist from Columbus, fueled up her Hyundai XG350 sedan.

"It's awesome," Duemey said. "With this gas guzzler, there was no way I could afford to keep paying the way (prices) were going."

While there have been few good weeks on the New York Mercantile Exchange since crude peaked on July 11, the past week was particularly bad.

Gasoline futures plunged to a new low Monday as Japan joined a number of European nations in recession. It was more of the same Tuesday and Wednesday. On Thursday, crude fell to levels not seen in three years.

Between Monday and Friday, crude had lost 12 percent of its value. Friday was the first time in six trading sessions that crude ended higher.

Light, sweet crude for January delivery rose 51 cents to settle at $49.93 a barrel on the New York Mercantile Exchange. Earlier, in electronic trading, the price dipped to $48.25, the lowest level since May 18, 2005.

In London, January Brent crude rose $1.17 to settle at 49.19 on the ICE Futures exchange.

Friday's activity reflected just how closely oil traders have gauged the mood in equities markets over the past several weeks.

Wall Street moved higher Friday, with investors taking a breather from the heavy selling of recent days. Energy and utility stocks showed some advances.

It was a different story earlier in the week.

The Dow plunged Thursday after the Labor Department said new applications for jobless benefits exceeded analyst estimates and rose to the highest level of claims since July 1992 and investors grew even more leery about the health of the nation's biggest banks.

In a note to clients Friday, Tudor Pickering Holt & Co. Securities said economic concerns are clearly trumping any further production cuts by the Organization of Petroleum Exporting Countries, which accounts for about 40 percent of global supply.

OPEC lowered production quotas by 1.5 million barrels a day last month, and some analysts predict even lower levels to come out of the cartel's next official meeting Dec. 17.

Such action "may not matter until folks have more visibility/comfort on (the) demand side," the Tudor Pickering note said.

Oil prices have been crushed as the global economic downturn has diminished demand.

How low prices can go is anyone's guess.

"Do not trust anyone in this market who tries to convince you that oil cannot go below $40," Schork said in his report Friday. "The same way no one had a clue how high prices could go last July, there is no telling how low we can go now."

In other Nymex trading, gasoline futures rose 5.7 cents to settle at $1.0643 a gallon. Heating oil gained 2.37 cents to settle at $1.6996 a gallon while natural gas for December delivery advanced 16.4 cents to settle at $6.532 per 1,000 cubic feet.

[Associated Press; By JOHN PORRETTO]

Associated Press writers George Jahn in Vienna, Austria, Alex Kennedy in Singapore and Pablo Gorondi in Budapest, Hungary contributed to this report.

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