Retail gasoline prices tumbled Friday to the lowest level in nearly five years. And while crude futures rose, analysts believed it was a temporary pause in an extended, downward arc as the recession spreads.
"We're paying about a billion dollars per day less than we were in July" for gasoline, said Tom Kloza, publisher and chief oil analyst at Oil Price Information Service. "We could probably bail out some banks and maybe even some of the auto companies with the savings."
But cheap gas is bittersweet news for an economy that shed millions of jobs this year. Pump prices were driven down mostly because Americans are staying home more. Transportation Secretary Mary Peters said the travel habits of Americans are "fundamentally changing" as drivers clocked 9 billion fewer miles in October, even as gas prices plunged.
Awful holiday retail sales, job uncertainty and shrinking global trade all suggest that demand for energy from both businesses and consumers will continue to fall into next year.
"By Tuesday or Wednesday, we could easily see crude oil roughly $3 below what it is right now," said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates.
New evidence that OPEC members had cut production and a weaker dollar boosted crude prices Friday in light trading.
Light, sweet crude for February delivery rose $2.36, more than 6%, to close at $37.71 a barrel on the New York Mercantile Exchange. Trading was closed Thursday for Christmas.
In London, February Brent crude rose $1.76 to settle at $38.45 a barrel on the ICE Futures exchange.
Tumbling crude prices have led to enormous declines in the price of retail gasoline.
At the pump, retail gas prices fell six-tenths of a penny overnight to a new national average of $1.642 a gallon Friday, well below the year-ago average of $2.981 a gallon, according to AAA and the Oil Price Information Service. The last time retail prices dipped this low was in February 2004, Kloza said.
The Organization of Petroleum Exporting Countries, which accounts for about 40% of global supply, has announced crude production cuts totaling more than 4 million barrels per day as it tries to stop the decline in prices. OPEC members, however, have a history of ignoring announced quotas and crude traders waited for concrete evidence that the 13-nation group was tightening the spigot.
Analysts pointed to a release from the United Arab Emirates advising clients that it would reduce supply almost immediately. The state-owned Abu Dhabi National Oil Company said it would cut production of some grades of crude by as much as 15% next month.
"For now, at least Saudi Arabia and the United Arab Emirates seem to be fully complying with the cuts," said analyst Olivier Jakob of Petromatrix in Switzerland.
OPEC may meet again in Kuwait City on Jan. 19 to discuss further production cuts. The group's next official meeting is March 15 in Vienna.
Investors in recent months have ignored supply cuts from OPEC, with demand issues clearly driving the market. What's kept crude prices at four-year lows is the steady drumbeat of gloomy economic news that shows consumers aren't spending like they used to.
The latest comes from a preliminary report by MasterCard SpendingPulse, which said retail sales fell between 5.5% and 8% during the holiday season, compared with last year. Excluding auto and gas sales, they fell 2% to 4%, according to SpendingPulse.