Posted on: Tuesday, December 16, 2003

U.S. gas prices hit 11-month low -- except in Islands

By Barbara Hagenbaugh and James R. Healey
USA Today

WASHINGTON — National gasoline prices this week hit their lowest levels since January, good news for the millions of Americans who will drive to visit friends and family during the holidays.

The average price for a gallon of regular gasoline was $1.465 yesterday, down from $1.476 the previous week and the lowest price since Jan. 20, the Energy Department said. It was the third consecutive week of declines.

Hawai'i, however, has yet to see significant declines. It remained the state with the highest average price for unleaded regular at $2.087 a gallon.

The national price fall was a bit puzzling given that oil prices, which account for nearly half of the cost of gasoline, have remained elevated throughout 2003. The decline was due to a variety of factors, including a seasonal reduction in gasoline use and a change to cheaper fuel formulations in the winter. Inventories are also at fairly healthy levels.

"It has to do with quite a bit of supply," says Fred Rozell, fuel-price expert at Oil Price Information Service, a New Jersey-based data firm. Rozell says European and South American firms are shipping gasoline to the United States because U.S. prices are higher than at home.

Although average gasoline prices per gallon were down 16 percent yesterday from the beginning of September, they were still 10 cents above last year's level.

The recent price drops come at a good time for the 48.5 million people who are expected to travel by car during the holidays, according to AAA. The motor club expects holiday driving to be up 2.5 percent from a year ago.

The decline is good not only for individual households, but also for the economy as a whole, says Stephen Brown, director of energy economics at the Federal Reserve Bank of Dallas. When consumers pay less for gasoline, they have more to spend in the general economy. Consumer spending accounts for 70 percent of U.S. economic activity.

"It helps consumers during the Christmas holidays," Brown says.

Drivers, however, shouldn't expect gasoline prices to go much lower. Investors in New York markets are pricing in increases in gasoline costs in future months. And continued high oil prices will likely keep a floor under current costs, says Bill O'Grady, director of futures research at A.G. Edwards in St. Louis.