AAA reports that the average price of a gallon of gasoline on Sunday was $3.94. A year ago, that figure was $2.89. The price of regular grade gas in many large states like California and New York is more than $4, which means most Americans are probably paying at least that amount. Premium grade gasoline is more than $4 everywhere.
Gas prices could drop sharply, however. This occurred in the second half of 2008, although that seems like decades ago. The same forces that pushed prices down then could return in the second half of this year.
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1. Demand in China Wanes
China's purchase manufacturer's index failed to rise in April. China is the world's largest net importer of oil. Several things could push prices down there. First, the Central Government could cut gas subsidies. This may be used as a way to tighten money flow and combat inflation. China's GDP and exports could also slow naturally if the economies of the U.S., the U.K., and E.U. falter. Japan's demand will almost certainly shrink, and it is the second largest net importer of oil in the world.