Oil, gas prices slip to new three-year lows

Don’t expect any more large drops in gasoline prices, an analyst says.

STAFF/WIRE REPORT

Oil and retail gasoline prices dipped to new three-year lows Tuesday with the United States officially in a recession.

Analysts believe prices at the pump may finally be bottoming out after a precipitous decline from record highs this summer. Yet demand could fall even further in January with job losses reducing the number of people who drive to work.

Gas prices fell for the 20th week since the July 4th holiday and hit $1.811 per gallon, according to the government’s Energy Information Agency.

Auto club AAA, the Oil Price Information Service and Wright Express said prices fell 0.8 cents overnight to $1.812, down 62.4 cents in the past month and $1.249 in the past year.

Gas could be found for a lot cheaper than that in many places. On the Web site GasBuddy.com, where motorists post gas prices, a BP station in Independence, Mo., outside Kansas City, was listed as selling fuel for $1.29 per gallon.

AAA said the average price Tuesday in the Mahoning Valley was $1.72, unchanged from the day before but down from $2.33 a month ago.

The local area was tied with Cincinnati as having the highest average price in the state.

“The big move for 2008 is over,” said Tom Kloza, publisher and chief oil analyst at the Oil Price Information Service. Prices may fall a few more cents this month and then likely waver into February before beginning to move higher, he said.

Kloza said demand will weaken further in early 2009 as job losses mount amid what may be an extended recession.

“January could be really, really ugly,” he said.

Light, sweet crude for January delivery fell more than 4 percent, or $2.32 to settle at $46.96 a barrel on the New York Mercantile Exchange. Earlier Tuesday prices briefly fell to $46.82, the lowest level since hitting $46.20 on May 20, 2005.

In London, January Brent crude slid $2.53 to a new 52-week low of $45.30 on the ICE Futures exchange.

Analyst Peter Beutel of Cameron Hanover said traders are searching for the bottom in the oil market.

“Right now, everyone is wondering when is this market going to rally,” he said. “At some point it should.”

Beutel said lower-than-expected temperatures across much of the country, increasing demand for gas and expected further cuts in production by OPEC make a strong case for oil prices to rally.

“That doesn’t mean we’re going back to $4 gas,” he said.

Backing up Beutel’s claim on demand is the SpendingPulse report by MasterCard released Tuesday afternoon.

The report’s four-week moving average shows demand of 63.9 million barrels a week. That is down 2.1 percent from the year-ago moving average and the smallest decline since May.

“It looks like we’re getting back to a more normal level from demand and price,” Michael McNamara, vice president of MasterCard SpendingPulse.

MasterCard’s report is based on aggregate sales activity in the MasterCard payments network, coupled with estimates for all other payment forms, including cash and check.

The Organization of Petroleum Exporting Countries, which accounts for about 40 percent of global supply, cut output by 1.5 million barrels a day in October, bringing total cuts to around 2 million barrels a day this year.

The slowing economy has cut into energy demand, leaving OPEC’s power to control prices through production cuts diminished.

OPEC Secretary-General Abdullah El-Badri said the group would likely reduce output quotas by between 1 million and 1.5 million barrels at a meeting on Dec. 17 in Algeria, according to a report on Iranian state television Monday.

The head of OPEC said he hopes oil-producing nations such as Russia will join the organization, or at least agree to output cuts to help spark a rally in prices.