Gas prices fall below $4 a gallon

For the first time since June 5, the average price of gasoline in the United States has fallen below $4 a gallon.

It hit $3.98 a gallon overnight for unleaded gas, according to GasPriceWatch.com, down 3 cents a gallon from Thursday.

The drop in gasoline prices mirrors a fall of about $20 a barrel in oil prices over the past two weeks. Economists believe if gasoline prices continue to fall it could give consumers a psychological boost. It could also help retailers and even the Detroit automobile companies.

"One of the first things the falling gasoline price does is potentially help consumer confidence," says Dennis Jacobe, the Washington-based chief economist at the Gallup polling company. "Even though prices are still high, if they are going in the right direction that helps a little bit."

On Friday, the Reuters/University of Michigan Surveys of Consumers showed consumer confidence rebounded from a 28-year low.

Falling gasoline prices may also help bolster the stock market. In recent months stock prices have been under pressure as investors worried about the affect of high energy prices on the economy. If prices were to continue to fall, it might also help Detroit, which has large stockpiles of SUVs, as well as retailers, who are preparing for the back-to-school season.

"If parents start to see this drop in prices, it might give them an extra $20 to $30 toward their child's back-to-school expenses," says Kathy Grannis, a spokeswoman for the National Retail Federation in Washington.

On a national basis, the price of gasoline is now down 14 cents a gallon from its peak of $4.12 a gallon set on July 16. However, in some markets the fall has been far greater. In Dayton, Ohio, the price has fallen almost 30 cents a gallon in the past month.

Gasoline prices are falling in part because demand for gasoline is down. Gasoline consumption fell 2.5 percent in the first six months of the year, according to the Energy Information Administration.

With demand falling, "the refiners don't have much pricing power," says Mike Fitzpatrick, an energy analyst at MF Global in New York.

Gasoline prices also tend to peak around the 4th of July. Gas supplies are now about 6 percent higher than a year ago. "We have gasoline coming out of our ears," says oil analyst Phil Flynn of Alaron Trading, a futures-trading firm based in Chicago. "This is perfect scenario for gasoline prices to start to come down."

At the same time, oil prices are off about $20 a barrel from their peak of $145.18 reached on July 14.

Some of fall in oil prices is related to a stronger US dollar, says Mr. Flynn. The dollar had been under pressure as investors worried about the US financial system. "The biggest sell-off in oil came after the US government said it would backstop Fannie Mae and Freddie Mac," he says. (Fannie Mae and Freddie Mac are quasi-government mortgage buyers.)