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Sep 25, 2014 3:50 PM

Prices at the pump head below $3 in much of US

The Associated Press

NEW YORK (AP) The price of a gallon of gasoline may soon start with a "2'' across much the country.

Gasoline prices typically decline in autumn, and this year they are being pulled even lower by falling global oil prices. By the end of the year, up to 30 states could have an average gasoline price of less than $3 a gallon.

The average in Springfield, Missouri, is already below $3, according to Tom Kloza, chief oil analyst at the Oil Price Information Service and GasBuddy.com. Several other cities are on the brink.

"And there will be more, many more," Kloza said. Cities in high-priced states such as California and New York will not be among them, though, which will probably keep the national average above $3.

At the current national average of $3.35 a gallon, gas is a dime cheaper than a year ago at this time. The gap is 20 cents or more in seven states, including California, Kansas, South Dakota and Connecticut, according to AAA.

Lower fuel prices help the economy in a few ways. They make goods cheaper to ship and make travel more affordable. Drivers are left with a few extra dollars in their pockets. And consumers grow confident enough to make other purchases, perhaps even a big-ticket item. Consumer spending is 70 percent of the U.S. economy.

Aidan Obrecht, a 20-year-old community college student from Boothwyn, Pennsylvania, said gas in his area has fallen 10 to 20 cents over the past couple of weeks. He paid $3.27 a gallon Thursday to fill up his Ford Taurus on his way to work at a CVS pharmacy.

"I'm living paycheck to paycheck, so it's nice to be able to save" he said. "Even if it's $5 or $10 extra (after a fill-up), it adds up over the long run."

Fall is when refiners are allowed to switch to a cheaper blend of gasoline for the cooler months, and driving demand declines after summer vacations have ended.

Refinery problems or hurricanes can halt the typical autumn price decline temporarily by reducing gasoline production. For example, a reported outage at a refinery in Eastern Canada that supplies the Northeast with gasoline is likely to push the price at the pump slightly higher in some markets over the next few days.

But by late October prices are usually well on their way lower.

Last year, the national average fell 28 cents per gallon between Sept. 1 and Dec. 31. This year, gasoline had a head start. It entered September at its lowest level for the beginning of the month in four years and the price of crude oil was rapidly heading lower.

The drop in global crude oil prices is a surprise. Despite increasing violence and turmoil in the Middle East, the world's most important oil-producing region, the global price of oil has fallen to $97 a barrel, close to its lowest level in more than two years.

That's partly because new technology has allowed U.S. drillers to consistently increase production from fields in North Dakota and Texas, adding to global supplies. At the same time, world demand is not growing as much as anticipated because of slower economic growth in China and Europe.

The increase in domestic supplies is also helping avoid dramatic spikes in gasoline prices, which economists say is more damaging to consumer confidence than prices that rise gradually. This year, the national average peaked at $3.70 per gallon in April. Last year, the peak was $3.79, and the year before it was $3.94.

The national average for gasoline is not likely to fall all the way to $3 because of a number of factors. Some state gasoline taxes have increased. Loyalty programs that offer discounts to members at many stations keep listed prices higher than what drivers actually pay. And some states have adopted regulatory rules that will probably add a few cents per gallon, Kloza said.

He predicts the national average will end the year somewhere between $3.15 and $3.25 per gallon.

Some analysts, including Bernstein Research's Oswald Clint, predict oil will soon head back up as OPEC countries respond to lower prices by cutting back and consumers respond by burning more fuel.

But many predict moderate oil and gasoline prices for this year and next. The Energy Department estimates the national average gasoline price for all of 2014 will be $3.46 a gallon, its lowest annual average since 2010. The government predicts the average will fall again, to $3.41, in 2015.

Phil Flynn, an oil analyst at Price Futures Group, expects an even bigger decline as U.S. oil companies produce more oil, refiners make more gasoline and demand for gasoline stays relatively low because of more fuel-efficient vehicles.

"For the regular driver, it's the best of times," he said. "Many are going to be shocked at how low prices go, but I'm saying 'get used to it.'"


Jonathan Fahey can be reached at http://twitter.com/JonathanFahey .


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