Average U.S. pump price could fall to $2

The average U.S. retail price for regular gasoline could drop to close to $2 a gallon in the coming weeks from the current national price of $2.229, the government’s top energy forecasting agency said Thursday, as oil dropped below $50 a barrel for the first time since May 2005.

An 18% drop this year in the price of crude, which generally accounts for about half the cost of making gasoline, has helped to push motor fuel prices lower in most of the nation. In California, where gasoline kept getting more costly in recent weeks despite oil’s tumble, pump prices have begun to follow the trend enjoyed by the rest of the country, slipping a nickel last week to $2.583 a gallon.

It takes about four to eight weeks for the drop in the spot prices at which gasoline is bought from refiners to be fully reflected at the pump, the federal Energy Information Administration said.

“Given this time lag, it is fairly straightforward to project the direction of prices over the next week or two. That said, prices may continue to fall nationally, such that they could get close to $2 per gallon by late January or early February,” the EIA said in its weekly review of the oil market.

The nearly 13-million-barrel jump in U.S. gasoline stocks over the last three weeks is also pushing pump prices lower, the EIA said.

Drivers in parts of the Midwest are already enjoying gasoline prices below $2 a gallon, with some cities close to $1.90.

In New York futures trading Thursday, light sweet crude for February delivery settled down $1.76 at $50.48 a barrel, after hitting a 20-month low of $49.90 during intraday activity.

Oil’s price decline has been spurred by warm U.S. weather that crimped demand for winter heating oil and bolstered inventories. The plunge marked the biggest price slide over 10 trading days since April 2003, after the U.S.-led invasion of Iraq.

Federal data released Thursday showed an increase of 6.8 million barrels in crude stockpiles last week, well above analyst expectations of a 100,000-barrel rise. Distillate supplies, including heating oil, rose 900,000 barrels while gasoline stocks jumped 3.5 million barrels.

Separately, the International Energy Agency, an advisor to 26 nations, cut its 2007 global oil demand forecast because of a mild winter in the U.S. and Europe.

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Reuters and Bloomberg News were used in compiling this report.