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Gasoline prices tumble, but what's next?
One expert says the worst is over even after two storms; pump prices sink 20 cents a gallon.
September 25, 2005: 10:08 PM EDT
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Experts are split on whether the days of $3 gasoline are over, at least for now.

NEW YORK (CNN/Money) - The price of gas fell more than 20 cents over the past two weeks to a national average of $2.81 a gallon of self-serve regular, a survey released Sunday said.

The Lundberg Survey tallied gas stations' prices at about 5,000 locations on Sept. 9 and again on Sept. 23, said Publisher Trilby Lundberg.

The lowest prices were found in Baton Rouge, La., at $2.23 a gallon, and the highest were in Honolulu, at $3.02 a gallon, she said.

Lundberg credited the partial restoration of supply following the closure of refineries on the Gulf Coast made necessary last month by Hurricane Katrina, and a lower demand for gasoline as a result of earlier price hikes.

Many of those same refineries closed again last week in anticipation of Hurricane Rita, which caused less damage than had been feared, damaging two in Louisiana and one in Texas, she added.

The nation's biggest refinery, Exxon-Mobile in Baytown, Texas, was unscathed.

"Much of the closed refining capacity will be coming back as early as the next couple of weeks," she said.

Once that happens, she predicted, prices will likely drop by another dime to 20 cents a gallon.

Lundberg's survey results were announced as oil and gas futures fell Sunday in electronic trading.

Crude oil sank more than $1 per barrel in the special trading session while gasoline futures fell 8 percent. (Full story).

Wall Street analyst Peter Beutel of Cameron Hanover predicted the average price nationwide will fall to $2.50 to $2.75 per gallon in the near term, and to less than $2 next year.

"I believe we are done with the with energy bull market," Beutel said.

Beutel said the recent spike in energy prices has drained $200 billion in disposable income from the economy, which he predicted will weaken growth next year. (Full story).

Other analysts were not so optimistic, saying prices at the pumps could soon climb back to near $3 a gallon.

Analyst Tom Kloza of Oil Price Information Service in Wall, N.J., said the Sunday declines in the futures market "may prematurely be sounding all clear."

Though damage from Hurricane Rita was not catastrophic, there's still "pretty significant damage" to refineries, and the lost production capacity in the Gulf area will keep upward pressure on prices, he said.

Also Sunday, New Mexico Gov. Bill Richardson for a federal investigation into potential price gouging.

"Oil prices right now and prices at the pump -- there is no correlation," said Gov. Bill Richardson, former secretary of the Department of Energy under President Clinton.

"I don't believe that these profits that are being generated are being done without some kind of manipulation," Richardson told CNN's "Late Edition with Wolf Blitzer. "We've got to get to the facts."

Red Cavaney, a spokesman for the American Petroleum Institute, blamed the price increases on the fact that much of the country's petroleum refining resources are located along the Gulf, where they are vulnerable to hurricanes, and noted the industry has had difficulty getting permission to build refineries elsewhere.

"It's extremely hard to get permits" to build new refining facilities, he said, citing a group in Arizona that has failed to get the permits after more than a decade of efforts.

He added, "We condemn price gouging. We do not practice it; we do not condone it."

Cavaney intimated that the worst may be over. "I don't predict prices, but I think it will definitely be a downward trend."

Lundberg dismissed Richardson's call as "wrongheaded."

"History has shown repeatedly that, when prices jump in times of a supply problem, it's actually part of the solution, and I don't think dealers should be targeted as crooks.

"When prices jump, they allow demand to pull back so that emergency purchasing of gasoline can take place, instead of hoarding."

Bob Tippee, editor of Oil & Gas Journal, an industry publication, said that while oil prices might be dropping from Friday's levels since most of the refineries in the Houston-Galveston area were spared by the storm, the market is not in good shape to weather a prolonged outage in the affected area.

"You've got a major hole in the oil market right now," said Tippee.

Some analysts were saying before Rita hit that a bad blow form the storm could spark $5 a gallon gasoline. (Full story).

But Beutel noted that traders on Sunday were reacting to reports that damage from the storms appeared less than expected, rather to the amount of damage that did occur.

"Yes, it's going to take time to repair these refineries, and yes there will be at least one day we'll see prices run up. But I think we've probably seen the highest gasoline prices behind us."

Here are some other prices:

-- Atlanta: $2.65

-- Boston: $2.89

-- Dallas $2.79

-- Chicago: $2.81

-- Seattle: $2.83

-- Baltimore: $2.90

-- with contributions from CNN's Drew Trachtenberg and CNN/Money's Chris Isidore

(Correction: An earlier version of this story incorrectly reported the latest national average price. We regret the error).

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For more on the damage to refiners, click here.

The storms' economic impact will extend far beyond the energy sector. Full story.  Top of page

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