Gas prices expected to fall further

Oil and gas prices slide

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NEW YORK (CNNMoney.com) -- If there's one bright spot in a bad economy, it's that gasoline prices have fallen, and they're expected to drop even further.

As the global economy falters, demand for oil has dropped. And since the price of oil makes up about half of the cost of a gallon of gas, analysts see more relief ahead at the pump.

"We ought to see prices drop pretty quickly," said American Automobile Association spokesman Geoff Sundstrom. "We're well on our way to $3 gas within the next week or two."

The national average price for a gallon of regular, unleaded gasoline fell 2.4 cents to $3.480 from $3.504, according to a daily survey released Tuesday by AAA. That's down 18% from an all-time high of $4.114 a gallon hit on July 17.

Gas prices rebounded last month when hurricanes Ike and Gustav passed through the Gulf Coast where the bulk of the nation's oil refineries are located.

While the damage was not as extensive as some had expected, the storms caused a short-lived spike in oil and gas prices.

On Sept. 17, after Hurricane Ike passed through the Gulf region, the national average gas price was a full 35 cents higher than Monday's price.

"But now that refineries are back online and more product is available, prices have no where to go but down," Sundstrom said.

"Demand seems to be drying up week by week," he added. And given the challenging economic environment and the strains on household budgets, Sundstrom expects American drivers to remain conservative.

Crude tumbled more than $6 on Monday to close at an 8-month low of $87.81 a barrel. That's down 40% from its July peak of $147.27 a barrel.

"Since crude makes up about 50% of the price of gas, gas prices should go down," said Ray Carbone, president of New York commodities trading firm Paramount Options.

Carbone added that gas prices have not fallen as dramatically as crude prices because refinery utilization has been low due to last month's hurricanes.

Still, hurricane season does not end until November and oil prices are notoriously volatile, notes AAA spokesman Troy Green. He cautioned that gas prices will continue to fall "only if conditions continue to improve in refinery capacity and oil continues to retreat."