The average retail price of a gallon of regular gasoline edged slightly higher in California over the last week, the Energy Department said Monday.
But analysts said it was a last-gasp, late-summer rise that would precede a drop of about 25 cents a gallon in the next few weeks. Prices already have begun dropping nationally, down a penny on average during the last week.
Lower prices are on the way even though refineries in California have been running at as little as 70% of production capacity, they said.
In addition, oil prices are falling because of plentiful supplies and low demand, as consumers keep a tight rein on their spending.
" 'Less bad' is the new 'good' in terms of the economy, and 'flat' is the new 'robust' in terms of oil demand," said Tom Kloza, chief oil analyst for the Oil Price Information Service in Wall, N.J. "There is a lot more fear out there over the economy and a lot less of a sense that better times are coming soon."
California motorists are paying an average of $3.047 for a gallon of regular gasoline, up 0.7 cents from last Monday, according to the Energy Department's weekly survey of filling stations. A year earlier, the state average was 99 cents higher.
Nationally, the average price fell one cent to $2.637 a gallon, pulled back by declines in the Midwest and the Gulf Coast of 4.6 cents and one cent, respectively. The national average was $1.103 a gallon higher at the same time last year.
In futures trading Monday, oil threatened to drop below $65 a barrel before a late rally trimmed the losses. Crude oil for September delivery ended the trading day down 76 cents, or 1.1%, to $66.75 a barrel on the New York Mercantile Exchange, with no logical place to go but down, analysts said.
"Oil prices are still inflated. Employment levels are not going to come back as quickly as anyone believed, and even if you still have a job, you're not going to be spending a lot of money if your friends and relatives are out of work," said Fadel Gheit, senior energy analyst for Oppenheimer & Co.
That partly explains why the momentum of the last small surge in gasoline prices was already coming to an end, Gheit said.
Phil Flynn, senior market analyst for the Chicago futures brokerage firm PFG Best, said energy markets were still reeling from last week's news about the demise of Colonial Bank, the biggest bank failure in the U.S. this year.
"It was a reminder that the nation's economy was still in trouble, and that definitely carried over into the trading today," Flynn said.