Gas Prices Drop -- Have We Passed the Peak?

Posted: May 05, 2008 10:38 a.m.

Late last week, the average price of a gallon of gas dropped for the first time in nearly a month.  The AP explains, "The national average price of a gallon of regular gas fell 0.1 cent," to an average of $3.62, according to an AAA survey of gas stations, released Saturday.  The drop ended 18 straight days of record price increases.  The price drop has a few analysts saying that the price of gas may have peaked.  Fred Rozell, retail pricing director for the Oil Price Information Service, told the AP, "It could go up just a little bit more…but I think it's running out of steam."  Rozell predicted that the nationwide average could reach $3.70/gallon "at the most."  What's behind the sudden decline in prices?  According to the AP, "Soaring gas prices are cutting demand for gasoline, and analysts have long theorized that falling demand will eventually force prices lower."

"Motorists do seem to be conserving," the Sacramento Bee says. "Gas consumption in California fell 4.5 percent in January compared to a year earlier," according to new data from that state's Board of Equalization.  "Prices on average were 26 percent higher than a year earlier, the agency said."  The change may have come because consumers believe high gas prices are here to stay.  Dan Sperling, director of the Institute of Transportation Studies at the University of California, Davis told the Bee that "his research has shown that in the short run, consumers complain about high gas prices but don't really do anything about it. That changes once they're convinced the higher prices are permanent."

Consumers have changed their car buying habits drastically.  In numbers we published late last week, automakers reported that April was their worst sales month in a decade.  Car buyers bought small, affordable cars, and little else.  So many have traded in SUVs that used car lots are nearly overrun with the vehicles, and they're quickly losing value. 

Many may now be looking at even smaller vehicles.  Michigan's Saginaw News notes that last year was "at least the third-best year for motorcycle sales in the past 30 years, and sales of scooters and dual-purpose bikes were at their highest levels in the past 20 years," according to Mike Mount, a spokesman for the Motorcycle Industry Council,

Where is the cheapest gas?  According to a separate AP story, "Of the cities surveyed, the cheapest price was in Cheyenne, Wyo., where a gallon of regular cost $3.39, on average. The highest average was in San Francisco at $3.95.  Across California, the statewide average for a gallon of regular was $3.90, mid-grade was at $4.01 and premium at $4.11.

Looking for something more fuel-efficient?  Research the best affordable small cars and hybrid cars with U.S. News' car rankings and reviews.