The Energy Information Administration on Wednesday said gasoline stocks last week rose by 811,000 barrels, compared with expectations for a 500,000-barrel decline. Inventories of diesel and other distillates rose 709,000, half of what was expected. The build in gasoline added to a negative tone for oil futures.
West Texas Intermediate futures settled down 1.3 percent at $45.15 per barrel, and Brent lost 40 cents to $49.59 per barrel. WTI is down 7.5 percent in the past week.
Lipow said gas stations in Ohio and Texas are already selling gasoline for under $2 a gallon, but California, which has seen refining problems, is still averaging $3.69 per gallon.
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"We have ample inventories in gasoline. A slight downtick in demand should occur here with summer ending and conventional gasoline coming on the market in October. There are all the elements for much lower prices at the pump," said John Kilduff of Again Capital.
The oil industry has become gloomier this earnings season, and its outlook now is that low prices will stretch on for longer. But at the same time, refiners have been meeting high demand for gasoline with a record high level of production, and that should help send gasoline prices lower.
"It's a glut in crude oil. Crude is on sale, so there's margin for refiners to operate at high utilization levels," said Lipow.
The Energy Information Administration said refining inputs exceeded 17 million barrels a day in each of the past four weeks, the highest level since the EIA began publishing data in 1990.
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Lipow said the refining industry has been adding capacity incrementally. The U.S. exports gasoline and distillates, as well as imports some gasoline for markets on the East Coast. "Come 2016, Valero will add a significant amount of crude capacity at Houston and Corpus Christi," said Lipow.