Friday, November 21, 2008

Gas prices sink below $2

It took gas prices more than three years to rise from $2 to a record high of $4.11, but just four months to plummet all the way back again - and then some.

For the first time since March 9, 2005, the average price of gasoline fell below $2 a gallon, according to a report from motorist group AAA.

The nationwide average price dropped to $1.989 a gallon, down from $2.02 on Thursday. The survey bases its information on credit card swipes from up to 100,000 service stations across the nation.

"It's almost an embarrassment of riches after what we saw earlier this year," said Peter Beutel, president of New Canaan, Conn.-based energy risk management firm Cameron Hanover. "This is absolutely the most amazing year I've ever seen in energy."

Beutel said that he expects the nationwide average to keep falling to about $1.75.

"I think in some of these very low-cost areas like New Jersey or Texas, you might even see it come down to $1.65," said Beutel.

The plunge in the nationwide average price comes as welcome news to Americans who are traveling for the Thanksgiving holiday.

Still, the motorist group AAA is expecting a decline in Thanksgiving travel this year for the first time since 2002, when Americans were still reeling from the previous year's terrorist attacks. About 41 million Americans will travel at least 50 miles for the Thanksgiving holiday weekend, a decline of 600,000 people, or 1.4%, from last year, said AAA.

Gas prices vary widely from state-to-state.

Alaska has the most expensive statewide average for unleaded, at $3.077 a gallon, while Missouri is the cheapest, at $1.690, according to AAA.

Here are AAA's averages for some of the most populous states: $2.239 in California, $2.371 in New York, $2.038 in Florida, $2.003 in Illinois, $1.923 in New Jersey and $1.858 in Texas.
Fast fall

Prices have come full circle since this summer's gas crunch. Expensive fuel made the term "staycation" the new buzz word, as motorists opted to vacation close to home rather than make the costly trek to relatives and friends in other parts of the country.

U.S. automakers witnessed a plunge in sales of pickups and sport utility vehicles, which became a headline issue in the presidential campaign.

The nationwide average price of unleaded hit its all-time high of $4.114 a gallon on July 17, 2008, provoking widespread public outrage.

But that was when crude oil prices were $145 a barrel. It was before the credit crisis and before economists said the country is likely in a deep and lengthy recession.

Expensive fuel and a weakening economy cut into demand for oil beginning in mid-July, sending the price of oil - and petroleum products like gasoline - into a tailspin.

Crude prices have now fallen below $50 for the first time in three and a half years. With a faltering economy that economists expect will get worse before it gets better, oil and gas prices may still have further to fall.

"This summer, we thought [gas for $2 a gallon] was impossible, and now we have crossed the threshold," said Ben Brockwell, director of data and pricing services for Oil Price Information Services. "It's an important psychological barrier."

Of course, lower gas prices will help drivers, but Americans are suffering from a troubled economy marked by mounting job losses and rising unemployment.

"I think the American consumers are afraid that this is a mirage," said Brockwell.

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