WASHINGTON — Oil prices settled below $70 a barrel Thursday, their lowest level in 14 months and down 53 percent from July's record price of $147.
Gasoline is cheaper, too. The national average price for a gallon of unleaded stood at $3.08, the AAA Motor Club said Thursday. And that price doesn't yet reflect the steep fall in oil prices over the past few days.
Gasoline prices nationally have fallen 33 cents in a single week, the largest such drop ever, according to the U.S. Energy Information Administration, the statistical arm of the Energy Department. Over the past four weeks, the EIA said, gasoline prices have dropped 68 cents a gallon.
Does that mean that Americans are driving more now?
"If they are, we haven't seen any evidence of that," said Michael Morris, an industry economist for the EIA.
Thursday's final oil price on the New York Mercantile Exchange was down $4.69 a barrel, or 6.3 percent, to $69.85, the first time it's settled under $70 since August 2007. Oil prices are down 27 percent year-to-date, a stunning development given the record $147.27 a barrel on July 11.
How low can gasoline's price go?
There isn't a direct correlation between oil and pump prices. For the week of July 20-26, 2007, oil averaged $74 a barrel, and on July 21 that year, the nationwide average pump price was $2.99. That would suggest perhaps a dime or more of price drops ahead if oil prices hold steady.
However, when oil was higher, at $80.12 a barrel the week of Oct. 19-25, 2007, the nationwide average pump price on Oct. 19 was lower, at $2.81. Gasoline was cheaper even as oil was more expensive. That's because other factors weigh heavily, such as seasonal demand and the vigor of the overall economy.
The U.S. economy is now widely thought to be in recession. That means more Americans without jobs, and less spending in general. Neither suggests that demand for gasoline is about to rise.
"It would be wrong to assume that Americans will immediately return to 'driving as usual' once gasoline costs $2 and some change. The overall economic situation for many consumers has deteriorated in the last year," said Troy Green, a AAA spokesman in the nation's capital.
Another consumption gauge is the EIA's weekly report on gasoline supplied by refiners. On Aug. 29, toward the end of peak driving season, refiners supplied 9.4 million gallons a day to the U.S. market. By Sept. 12, this number had fallen to 8.9 million gallons and on Oct. 3, still before the near meltdown of financial markets, refiners were supplying less than 8.7 million gallons a day. This suggests that even with falling prices, motorists don't seem to be driving more.
"Many of these consumers will remain more conservative with regard to discretionary spending, regardless of the gas price," Green said.
The price outlook is more confusing for home heating oils, which are used extensively in the Northeast and Midwest. The EIA earlier this month forecast a 31 percent increase over last year's energy bills for residents who heat their homes with fuel oil.
Home heating-oil prices averaged $3.38 a gallon Monday, according to the new EIA report, down almost 28 percent from a week earlier but still up 59 percent from the same time last year.
"It's still more expensive . . . and on top of that we're concerned about the increased number of families" seeking public assistance, said Mark Wolfe, the director of the National Energy Assistance Directors' Association. "We're expecting an increase in the number of families because of the declining economy."
In the short run, these falling prices will provide some relief to consumers, but experts aren't sure what oil will be selling for in the weeks and months ahead.
"It's responding like everything else, a massive flight across asset classes at this point," said Mike Fitzpatrick, the vice president of energy for MF Global in New York, a company that specializes in commodity trading.
Just as analysts thought that the huge oil-price spikes earlier this year reflected a disconnect from the underlying fundamentals of supply and demand, the recent steep plunge in prices follows the same logic. Investors are fleeing the commodities market broadly, not just oil, and that's exaggerating the fall in crude prices.
"Prices have carried beyond the economic fundamentals," said Fitzpatrick, who thinks that the fundamentals suggest oil in the $75-to-$85-a-barrel range.
The falling prices have struck fear in oil-producing nations. The Organization of Petroleum Exporting Countries on Thursday moved up its scheduled Nov. 18 meeting to an emergency gathering Oct. 24 in Vienna, Austria.
OPEC President Chakib Khelil, who's Algeria's oil minister, said he thought that the fundamentals argued for an oil price of $70 to $90 a barrel. Other OPEC members are calling for a cut in production of 1 million barrels per day.
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