Fill 'er up! Gasoline prices set to tank

Cheap gasoline prices are about to get a lot cheaper, as U.S. refiners are creating a fuel glut from the global oversupply of oil.

The average national retail price for unleaded regular fell below $2 a gallon this week, a seven-year low. Also, new government data showing the biggest buildup in supply since 1993 sent prices in the wholesale and futures market sharply lower. That should translate to cheaper prices at the pump in a matter of days.

Retail gasoline prices could drop to "somewhere between $1.75 and $1.95" before they bottom in the next 40 days, said Tom Kloza, Oil Price Information Service's top energy analyst. According to AAA, unleaded gasoline was selling at a national average of $1.99 Wednesday.

U.S. government data Wednesday showed a surprise 10.6 million barrel buildup in gasoline supplies last week, and a 6.3 million barrel jump in supply of distillates such as diesel and heating oil.

"We could see the national retail average 5 or 7 cents lowerover the next 10 days," said Andrew Lipow, president of Lipow Oil Associates.

Front month gasoline futures were down more than 6 percent at $1.17 a gallon on the Nymex as the government report added to earlier weakness. In the spot market, gasoline prices were down 8 to 10 cents per barrel nationally, Kloza said.

"It was shocking," said Lipow. "Gasoline demand was off by a shocking amount as well." Gasoline demand fell by 1.2 million barrels a day for the week, a 13 percent decline, he said.

"A significant amount of people were not working last week, and were on vacation as refiners were still cranking out the gasoline and it went into inventories," said Lipow.

But the question is whether demand can pick up during the typically slower driving period of January and February. "It's the lowest gasoline demand number since the snow storms of February 2014," said Kloza.

The glut in diesel continues to weigh on the market, and has been aggravated by lower heating fuel demand due to the warm winter.

"For diesel fuel, jet fuel, heating oil, we're seeing the lowest prices since 2004," said Kloza. "There's too much international supply. It's an El Nino winter."