Gas prices dropped another 18.3 cents in the last week to a new low of $1.89 a gallon for regular unleaded today, according to UCAN, the Utility Consumers' Action Network's  not-for-profit gas project at fueltracker.com.

At this time, it looks as though prices will continue to drop for the short term, although a return to $3 a gallon gas by Spring of 2009 is likely.

According to UCAN, gas prices have not been this low since February 10, 2004, when gasoline cost $1.89 a gallon and oil cost $33 a barrel.

The average price of gasoline will likely drop below $2 a gallon in San Diego by Thursday or Friday morning.

Today's average price of $2.02 a gallon for regular unleaded is the lowest gas price since January of 2005, when gas prices cost less than $2 a gallon (see statistics below).

What's odd about this trend is that right now the oil companies are actually losing money selling gasoline. At noon today, a barrel of oil was selling on the NYMEX for $54, while a barrel of gasoline on the Los Angeles Spot Market was selling for $48. 

Even though there was a slight firming in wholesale prices today,
the short-term trend is down, down, down for gasoline and diesel
through Tuesday. To put things in perspective, gas prices in San
Diego have dropped one dollar and 8 cents in the last month at a
rate of 3.5 cents per day on average. This is the fastest decrease
in over 60 years, and probably the largest price cut in the last
100 years. If this trend continues for another 30-days (unlikely)
gas will cost 99 cents a gallon by December 22.

The cost of oil keeps screaming higher while reports keep showing that demand for oil is down. Even the Saudis admit that their product is overpriced, yet oil and gas markets remain more volatile than ever.

At issue is the fact that the market mania has been driven by two factors: a weak U.S. dollar and speculators trading paper barrels with paper money on the New York Mercantile Exchange (NYMEX) futures market. Let's look briefly at each factor: