We're in the middle of a second straight day of heavy losses for oil and wholesale gasoline prices, brought to you by reality. The DOE report issued yesterday underlined how bad things really look for refiners and producers of oil.

Demand has not risen out of the ordinary, supplies remain high of nearly every oil product, and spare capacity is abundant in nearly every area of the country. Areas that were hard hit the last few weeks by rising gas prices (such as California) now are seeing some of the deepest drops in wholesale prices as the supply outlook improves. Wholesale gasoline prices in California have dropped nearly 75-cents from their peak just days ago. Prices there will give back the most in the coming days as retailers sell through their tanks and purchase new supplies.

Other areas of the country may begin to flirt with $2 per gallon as lower wholesale prices as passed on to consumers in the coming days. Currently, I expect the cheapest prices to show up first in the Gulf area, followed by the Midwest in the Plains. While prices will fall on the West Coast, they will take some time to do so. Prices also have been sliding in areas on the East Coast, such as New Jersey, New York, and Pennsylvania.

Prices in Canada are also falling, with more than half of Provinces under 100c/L. Leading the way lower is Alberta, where the average is falling close to 91c/L. Prices will fall as low as 85c/L in some areas with Nova Scotia and Quebec to soon fall under 100c/L.

In the short term (5-7 days) prices in some areas will see steep declines, so it is advisable to hold off on filling your tank up as prices decline. I expect the U.S. average to fall to $2.49 while prices in Canada average 97.9c/L by the end of the weekend.

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