Energy traders observed Labor Day, the unofficial end of the summer driving season, on Tuesday by pushing gasoline and crude oil futures down sharply.
Unleaded gasoline for October delivery finished the day at 85.2 cents per gallon, down 7.6 cents, or 8 percent, on the New York Mercantile Exchange.
The expectation of softening demand for gasoline triggered a sell-off in October crude futures, which declined $2.16, or 7 percent, to $29.41 per barrel.
A week ago, gasoline futures traded at $1.08 a gallon, while crude futures traded at $31.95.
It could take a couple of weeks for the post-Labor Day drop-off in gasoline futures prices to filter down to retail markets, but analysts said the worst is most likely over for motorists, who saw average nationwide pump prices skyrocket to $1.75 per gallon last week.
A year ago, retail prices averaged about $1.41 per gallon.
"There's absolutely no question that we're way past the highs for the year," said Tom Kloza, director of Oil Price Information Service, a publisher of industry data based in Lakewood, N.J.
That may be true for gasoline, but tensions in the Middle East, Venezuela and other crude-producing regions could keep pressure on oil prices longer term. That could be bad for consumers who rely on heating oil, a crude derivative, once the home heating season begins, traditionally at the end of October.
Production snags at key California refineries, a ruptured pipeline in Arizona and overall supply tightness contributed to the run-up in gasoline prices over the summer.
Between Aug. 18 and Aug. 25, the average retail price for regular unleaded gasoline shot up 12 cents per gallon, the biggest one-week increase ever, according to the Energy Information Administration, the Energy Department's statistical division.
Indeed, nationwide supplies of gasoline are still extremely tight. For the week ending Aug. 22, commercial inventories stood at 191.2 million barrels, 8 percent below year-ago levels and the lowest level since the week ending Nov. 17, 2000, according to EIA.
However, beginning Sept. 15 refiners will no longer have to meet stringent specifications for cleaner-burning summer gasoline, and that should make it easier for them to increase supplies, according to Ed Silliere, analyst at Energy Merchant in New York. The recent high prices have also spurred a healthy amount of imports, Silliere said.
While Tuesday's declining gasoline futures caused crude futures to drop, too, the impact on oil prices could be moderated in the months ahead by geopolitical unrest and the upcoming home heating season.
"The focus now turns to heating oil," Silliere said.