Gas prices drop 26 cents in a week; some areas below $2 a gallon

HOUSTON -- The price of gasoline continues to fall at breathtaking speed, dropping to a U.S. average $2.656 per gallon, down 25.6 cents in a week, the government reported Monday.

Only three states report statewide averages higher than $3, travel organization AAA reported Monday: Alaska, Hawaii and California, regularly the highest-price states. AAA uses a different survey than the government's, but nearly always comes up with similar numbers. The government does not publish a state-by-state survey.

The U.S. Energy Information Administration said its average is 21.6 cents a gallon lower than a year ago. It is the sixth-consecutive week that the nationwide average has declined in the EIA's survey, for a total drop of $1.179 per gallon in that time.

The record: $4.114 July 7.

The collapse in prices has been faster and deeper than forecast.

"It is stunning," says Tom Kloza, petroleum-price analyst at the Oil Price Information Service, a consultant. "I remember saying $2.75 by Halloween. Now, I think $2.50 by Election Day."

Gasoline dealers probably will have to dig out the "1"s for their price signs, he says, "but I wouldn't get rid of the '4's, either," because the average could return to record levels before the next administration's first term is over.

The impact on the collapsing auto industry could be sudden. "Month after month after month, the lower the price of fuel, the higher the interest in larger vehicles and engines," says Jim Hossack at consultant Autopacific.

Autopacific's latest survey was in September, when prices had fallen only a few cents, Hossack says, and already fewer people said they'd trade for a small car than in July, and more said they'd trade for a pickup.

Bigger vehicles tend to be more profitable, but automakers have slashed production of those models and might not be able to exploit a full-scale buyer reversion to big vehicles.

Low fuel prices are a bright spot for motorists but result from global economic problems. The price of oil is showing that investors fear a long slump.