After 4-month surge, gas prices start falling

[April 21, 2012]  NEW YORK (AP) -- The worst appears to be over. Gasoline prices are going down.

After a four-month surge pushed gasoline to nearly $4 per gallon in early April, drivers, politicians and economists worried that prices might soar past all-time highs, denting wallets, angering voters and dragging down an economy that is struggling to grow.

Instead, pump prices have dropped 6 cents over two weeks to a national average on Friday of $3.88. Experts say gasoline could fall another nickel or more next week.

Drivers might also get to say something they haven't since October 2009 -- they're paying less at the pump than they did a year ago.

"It's nice, much more manageable," said Mark Timko, who paid less than $4 per gallon Wednesday in the Chicago suburb of Burr Ridge, Ill., for the first time since March. "I wasn't sure how high they were going to go this year."

Gasoline prices are lower than they were a year ago in 11 states, according to the Oil Price Information Service. At $3.88, the national average is still high, but it's down from a peak of $3.94. Predictions of $5 gasoline earlier this year have -- mercifully -- evaporated.

Tom Kloza, publisher and chief oil analyst at Oil Price Information Service, expects gasoline prices to drop to just above $3.80 by late next week. Stuart Hoffman, chief economist at PNC Financial Services Group, said the falling prices will put more money into the economy for Americans to spend elsewhere.

A 10-cent drop in gasoline prices would mean drivers would have an extra $37 million per day to spend on other things.

Gasoline prices have been pushed high by crude prices that have averaged $104 per barrel this year. World oil demand is expected to set a record this year and a series of production outages around the world have kept supplies low.

Oil rose to $110 as the West tightened sanctions on Iran in an effort to make it harder for that country to sell oil and pressure it to abandon its nuclear ambitions. Fears that retaliation by Iran could disrupt Middle Eastern supplies pushed oil prices up by as much as $15 per barrel, experts say.

Closer to home, there were concerns about restricted supplies of gasoline on the East Coast after three refineries closed and two more were set to be shuttered. Gasoline futures prices, which are quickly reflected in pump prices, rose to their highest levels in nearly a year.

But several factors have contributed to the lower prices at the pump:

• Oil prices have fallen in recent weeks. Iran and the West are negotiating, the growth in demand for oil has moderated, and world oil supplies are rising again thanks to more production from Saudi Arabia, Libya and the United States. Oil has fallen to $103.05 per barrel, down from a peak of $110.55 on March 1.

• Potential buyers for the two East Coast refineries have emerged, so they are now expected to stay open.

• U.S. drivers have gotten frugal at the gas pump. Gasoline demand has dropped by about 6 percent, compared with the same period last year, according to the latest government data.

In response, gasoline futures have since dropped by 8 percent. That's expected to cut the price of wholesale gasoline, and those savings will be passed on at the pump.

Prices are not expected to plummet. Even if the Iran situation were totally resolved -- an unlikely event -- analysts say oil would not fall much below $90 per barrel.

And there's a possibility prices could still reverse themselves. Hurricanes in the Gulf of Mexico, inflamed Middle East tensions or fighting in a major oil-producing country like Iran or Nigeria could reduce supplies. A surge in world economic growth could increase demand.

Gasoline prices rise nearly every spring, and often peak in May.

This year, they're falling a little earlier, and motorists are already making summer vacation plans.

Timko was going to take the train to Washington. D.C., this June with his wife. With gas prices down by about 40 cents per gallon -- and more importantly below $4 -- in their neighborhood, they've decided to drive instead.

"Under $4 makes a big difference," he said. "Just from a perception standpoint."

[Associated Press; By CHRIS KAHN and SANDY SHORE]

AP Energy Writer Jonathan Fahey contributed to this story. AP Business Writer Paul Wiseman contributed from Washington.

Follow Chris Kahn on Twitter at http://twitter.com/ChrisKahnAP.

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