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Gas prices could drop 20 cents by Memorial Day, experts say

Gas prices are expected to drop – perhaps quite a bit – as the wholesale price of gasoline tumbles. The size of the drop will depend on how long commodities prices remain low.

By Ron SchererStaff writer / May 12, 2011

Traders work the crude oil options pit at the New York Mercantile Exchange Friday. The wholesale price of gasoline continues to fall, meaning gas prices at the pump should drop, too.

Mary Altaffer/AP

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New York

Drivers may finally get a break at the pump.

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Perhaps even by this weekend, the price of regular grade gasoline could be as much as 10 cents a gallon lower and by Memorial Day another 20 cents a gallon lower.

Behind the falling gas prices: a collapse of the price of gasoline on the futures market.

On Wednesday, the wholesale price of gasoline on the New York Mercantile Exchange drooped almost 26 cents a gallon. On Thursday, the price fell a further 7 cents to $3.05.

“The bubble has been pricked,” says John Kilduff, president of Again Capital, an energy trading firm in New York. “Behind the fall was an uptick in supplies.”

On Wednesday, the Department of Energy reported a buildup in both gasoline and crude oil stockpiles. At the same time, the report showed a surge in imports from Europe where demand and prices are lower.

“We’re importing a million barrels of gasoline per day,” says Sandar Cohan, a principal at ESAI, an energy consulting firm in Wakefield, Mass. “It makes sense to put gasoline in a tanker and ship it to the US.”

Earlier in the week, some traders were worried that the flood now moving down the Mississippi River would adversely affect the refineries north of New Orleans along the river. But refiners have not reported any difficulties yet.

“There is a realization this is not hurricane Katrina,” he says.

Even though the price of gasoline was falling on the commodities markets, the price at the pump has not yet started down. According to AAA, the price of regular gasoline is now $3.98 a gallon, up from $3.96 a gallon on Wednesday.

“There is a lag,” says Mr. Cohan. “It takes a while for the wholesale price to trickle down.”

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