American motorists soon may see prices at the pump drop below $3 a gallon nationwide, if crude oil prices remain near current levels for a couple of months, a government forecaster said Tuesday.
Indeed, some gas stations, including a Stuffy Mart in Magnolia near Houston, have slashed their prices below the $3 level already.
If economic conditions continue along their current trajectory, and the Organization of the Petroleum Exporting Countries doesn't step in and slash production, "you could see gasoline prices continuing to move south pretty significantly," said Howard Gruenspecht, the acting head of the U.S. Energy Information Administration.
Prices at the pump have fallen nearly 15 cents a gallon since last week, Gruenspecht said. And prices could drop further if crude prices remain in the $85-$90 range for a sustained period.
Light, sweet crude for November delivery rose $2.25 to settle at $90.06 Tuesday on the New York Mercantile Exchange.
Some station operators have decided not to wait around to see if the lower crude prices stick.
The Stuffy Mart in Magnolia, for instance, was selling regular Tuesday afternoon for $2.95 a gallon. And store manager Shakel Maknojia said he plans to drop the price to $2.89 when his next load of fuel arrives.
Tom Kloza with the Oil Price Information Service, which collects gasoline price data for AAA, said sub-$3-a-gallon gas has been showing up at locations from Kansas to New Jersey, with another half-dozen states likely to break the $3 mark this week.
But such outlets remain rarities. Nationwide, regular unleaded was still selling Tuesday for an average $3.48 a gallon, while in Houston motorists were paying an average $3.33, according to AAA's Daily Fuel Gauge Report.
Houston typically enjoys lower gasoline prices than the national average and, thus, could see $3 gas sooner than many areas. Despite the lower prices, gasoline demand continues to remain weak.
In fact, with an economy in turmoil, markets still short of fuel because of Hurricane Ike and prices still far higher than a year ago, gasoline demand last week was off 10 percent from the same period a year ago, according to MasterCard Advisors' SpendingPulse report.
With economic conditions seeming to change by the hour, government analysts were in the unenviable position of trying to predict how energy prices will behave through the winter.
"It's really a stay-tuned type of question," Gruenspecht said.
The Energy Information Administration's official forecast, released Tuesday, predicts prices at the pump will average $3.56 a gallon this year and in 2009.
The price of crude is expected to climb back up to $120 a barrel by April and average $112 a barrel through 2009, the agency said.
But those projections were based on economic forecasts from mid-September. The financial crisis that helped send the Dow Jones industrial average down another 508 points Tuesday has economists rethinking their assumptions.
The Energy Information Administration relies heavily on economic forecasts provided by Waltham, Mass.-based Global Insight.
Just a few weeks ago, Global Insight was predicting the nation's economy would grow by 1.2 percent in the third quarter and contract only about 0.2 percent in the fourth quarter.
But in its latest report released Monday, Global Insight predicted the nation's gross domestic product would decline by 0.2 percent in the third quarter and 1.5 percent in the fourth.
