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WASHINGTON -- Gas prices have fallen to the lowest in 10 months and crude oil prices have fallen on skepticism about OPEC's production cuts, according to reports from The Associated Press and Bloomberg News.
The Federal Energy Information Administration (EIA) stated on Monday that U.S. drivers spent an average of $2.21 per gallon for regular gas last week, a decrease of 1.8 cents from two weeks ago. There is a 40 cent disparity between pump prices from last year and an 80 cents a gallon drop since the beginning of August, the AP reported. The previous low for gas prices in 2006 was set in early January, when prices averaged $2.23. A week prior, Dec. 5, 2005, prices stood at $2.19.
Today, gas can be found for under $2 a gallon around the country, although west coast gas prices have been the highest across the nation, averaging at $2.46 per gallon, the EIA reported. The lowest prices can be found in the gulf coast region, where they average $2.09 a gallon.
Crude oil for December delivery fell $1.07, or 1.8 percent, to $58.26 in after-hours trading on the New York Mercantile Exchange, reported Bloomberg News. The fall is due to speculation that OPEC will not cut production as much as planned, when it announced on Oct. 19 that crude production would be cut by 1.2 million barrels.
"We have often seen in the past that OPEC doesn't stick to their quota," Ulrich Steiner, an analyst for Bank Leu AG, told Bloomberg News.
In addition, the cuts will be made for countries that already are struggling to meet current quotas, which make it doubtful that they will be adhered to, according to Deutsche Bank analysts Lucas Herrmann and Jonathon Copus, who were cited by Bloomberg News.
The cut was OPEC's effort to boost prices, which have fallen 25 percent from its peak in July. The decline started at $78.40, when tensions between Israel and Hezbollah eased. Meanwhile, U.S. inventory increased and demand declined as the summer driving season passed.
But some industry experts believe that the cuts will not be enough to diminish the stockpile of crude and boost prices.
"It may be enough to stop the fall, but it's not enough to cause a rebound," Anthony Nunan, the assistant general manager of Mitsubishi Corp.'s international petroleum business, told Bloomberg News. "People feel we still need some drawdown in inventories before we can really get bullish."
The new low prices are causing some upsets in the retail industry, according to reports from Reuters. U.S. chain stores' retail sales fell last week after a rise for the two weeks prior, despite the declining gas prices. Weekly sales dropped 1.1 percent in the week ending Oct. 21, compared to a .6 percent increase the week prior, according to a report by the International Council of Shopping Centers (ICSC) and UBS.
Analysts estimate that the drop in gas prices have been disproportionately felt between various income groups. Those making $35,000 or less annually are still being pinched by gas prices, according to ICSC chief economist Michael Niemira. "In October that group's discretionary spending continued to be dragged down disproportionally -- an indication of the unevenness of gasoline price declines on spending," Niemira wrote in the report.
However, colder weather has played a positive role for retailers, driven by sales of winter merchandise, Niemira told Reuters.
Gasoline peaked at an average $3.07 a gallon last September, due to a slim market after Hurricanes Rita and Katrina, which destroyed refineries and pipelines connecting the Gulf Coast to the Midwest and East Coast. Prices remained high since then, caused by high crude-oil prices, tight refining capacity and a looming hurricane season, which proved to be uneventful, the AP reported.