Average gas price falls to lowest level since February 2007

— -- The average price of gasoline has slipped to less than $2 a gallon in some metro areas for the first time since February 2007.

The drop has even sparked some old-fashioned gas-price wars.

"In the Indianapolis market, some competitors were so eager to go below $2 that we had a price war," says Jay Ricker, who owns 54 BP and Marathon stations in Indiana and supplies an additional 40.

At one of his stations outside Indianapolis, "We're at $1.86, and that's 12 cents below cost, before credit card fees," in order to stay competitive, he said Monday.

Motorists will shift stations for a penny, and station owners stand to lose profitable convenience store sales if fuel buyers go elsewhere.

Springfield and Kansas City, Mo., slipped to $1.991 and $1.997 Friday. St. Joseph, Mo., and Tulsa followed over the weekend, and all continued to fall Monday, according to daily tallies by the Oil Price Information Service and Wright Express, published by AAA.

Metro-area averages in Iowa, Kansas and elsewhere in mid-America could fall below $2 today.

The national average for a gallon of regular was $2.40 Monday in the U.S. Energy Information Administration's weekly survey, down 25.6 cents from last week.

The average has dropped $1.435 since Sept. 15, when the slide began, and $1.714 since the record average $4.114 set July 7. EIA uses a different survey method than OPIS/AAA/Wright Express, but the results are similar. The EIA doesn't publish metro prices.

The national average "may even go under $2 before it bottoms," says Fred Rozell, gas-price expert at OPIS. "Markets overreacted to the upside, and now they are overreacting to the downside. Traders tend to have a herd mentality."

Retail prices are dropping because of falling wholesale gas prices, down 13.3 cents in Nymex trading Monday, to $1.363 a gallon for December delivery.

That's good news for most station operators — if they aren't caught in a price war. Gross margins — profit before credit card fees — are averaging about 40 cents a gallon, OPIS reports. That's well up from the 13 cents that's typical and the 8 or 9 cents in July when fuel prices peaked.

"Margins are unbelievably high" for retailers now, Rozell says. "Their prices haven't dropped as fast as the wholesale prices" they pay, he says.