More good news for drivers came Monday as the wholesale gasoline price fell below $2 a gallon for the first time in more than four months.
Oil prices, meanwhile, fell at the fastest pace in seven months as investors sought to lock in profits after last week's price surge. The move comes less than a week after oil hit a record, not adjusted for inflation, of more than $78 a barrel.
The sell-off in the energy markets helped lift stock prices. The Dow Jones industrial average rose 287 points to 13,469.
The decline in gasoline prices comes as refineries continue to pump out healthy volumes of gasoline and the busy summer driving season nears an end. Investors have gone from worrying about too little gasoline at the start of the season to seeing ample supplies, says Darin Newsom, senior analyst at DTN, an electronic media firm that tracks energy markets. "We basically have the market in a free fall," he says.
"The consumer could easily see prices 10 to 20 cents lower at the pump before the end of August," says James Williams, economist at WTRG Economics.
Oil Price Information Service analyst Tom Kloza predicts the U.S. average price at the pump will hit $2.75 next week. Monday, the nationwide average retail price for a gallon of gasoline was $2.838, down nearly 4 cents from a week ago and 20 cents lower than a year ago, the Energy Department said.
The declines are coming as wholesale prices continue to drop. Monday, the price for a gallon of gasoline trading for delivery in September fell more than 10 cents, or 5.1%, to $1.926. That was the first time the number was below $2 since March 23.
Also helping is a decline in oil prices. The price of a barrel of light, sweet crude oil trading for delivery in September fell $3.42, or 4.5%, to $72.06 a barrel Monday. That was the swiftest one-day drop since Jan. 4. Oil typically accounts for half the price at the pump.
Why gas prices are falling:
•Supply. After shutting down some lines earlier in the year for maintenance, refineries have been ramping up production. Gasoline inventories have risen in 11 of the past 13 weeks, the Energy Department says.
•Demand. The increase in supplies comes as the busy summer driving season nears its unofficial close on Labor Day. With demand poised to decline in a few weeks, investors are becoming more comfortable that supplies are ample to make it through the summer.
•Hurricane no-shows. At the start of the season, forecasters were predicting a busy hurricane season. That had investors nervous that refineries and oil production could be cut significantly as storms swept through the energy-rich Gulf Coast area. So far, the season has been fairly quiet.
But the hurricane season does not end until Nov. 30, and forecasters at Colorado State University still predict hurricanes will arrive in the next few months.