NEW YORK – A threat that's been hanging over the economy is starting to look a lot less menacing.
Oil and gasoline prices are sinking, giving relief to businesses and consumers who a few weeks ago seemed about to face the highest fuel prices ever.
President Barack Obama's re-election prospects could also benefit, especially if prices keep falling as some analysts expect. A majority of Americans disapproved of Obama's handling of gas prices in an AP-GfK poll early this month. But that was before the full effect of the recent drop had reached drivers.
The average U.S. retail gasoline price has dropped 21 cents a gallon to $3.73 since hitting a 2012 peak of $3.94 on April 6.
The economy could gain, too. Consumers who spend less on fuel have more to spend on other purchases, from autos and furniture to appliances and vacations, that could help drive economic output and job growth.
The price drop will likely boost consumer confidence. It also comes at a timely moment: Ahead of the Memorial Day weekend, a busy one for travel and entertainment spending.
"It's extra money in the wallets of most American consumers, and that's going to help," said James Hamilton, an economist at the University of California, San Diego who studies oil prices.
Lower oil prices also mean cheaper diesel and jet fuel for shippers and airlines.
Crude oil, which is used to make gasoline, is at a seven-month low of $92.81 a barrel. It's down nearly 13 percent since May 1. Behind the steady drop are larger fuel stockpiles, easing fears about Iran and expectations of lower demand as the global economy slows.
The average national gasoline price is expected to fall as low as $3.50 a gallon this summer. It could even dip near $3 in some states. The national average is being propped up by refinery problems in California that have lifted prices well above the national average there, according to Tom Kloza, chief oil analyst at the Oil Price Information Service.
A 50-cent drop in the gasoline price would save consumers roughly $70 billion over a year.
Earlier this year, oil and gasoline prices were jumping from already high levels. Global demand was rising. And production outages were reducing supplies. Tensions between Iran and the West over Iran's nuclear ambitions raised fears that output from the world's third-biggest exporter would plunge.
The price of U.S. benchmark oil rose to about $110 a barrel from $96 in the first three weeks of February. The price for international oil, used to make most of the gasoline in the United States, spiked even higher: to $126 per barrel from $110 over roughly the same period.
Gasoline prices in the U.S. appeared on track to soar past $4 a gallon nationwide. Confidence among U.S. consumers, already suffering from high unemployment and scant wage growth, would have likely worsened.
"People were prepared emotionally for $4.50 or $5 gasoline, so there's a sense of relief," Kloza says.
No one is yet overflowing with glee over current prices. So far this year, gasoline has averaged $3.67 a gallon nationwide. If sustained all year, that would be the highest annual average ever.
John Heimlich, chief economist at Airlines for America, a trade group, is among those who aren't ready to cheer. Jet fuel prices dipped below $3 per gallon for the first time in months Tuesday, he said.
"I need more than one day below $3," Heimlich said. "I need weeks and weeks and weeks."
John Tillman, who runs Certified Carpet Care in Wesley Chapel, Fla., spends $4,000 a month on fuel for his vans that crisscross the state, visiting restaurants and other clients. He says gasoline prices are still way too high and he thinks the government should do more to protect small businesses from high fuel prices. But he'll take any drop he can get.
"It's helped some," he said.
Hamilton and other economists say high unemployment and a weak job market are more important to the health of the U.S. economy than gasoline prices. Still, voters tend to blame presidents for high fuel prices, even if there's little a president can do to influence them.
It's less clear that voters give a president credit when gasoline prices fall.
Michael Dimock, associate director at the Pew Research Center, suspects that voters won't exactly thank Obama for $3.75 a gallon gasoline. Still, it dulls a weapon that his presumptive Republican challenger, Mitt Romney, would like to use to unseat the president.
And Obama can look forward to further help this fall. After Labor Day, refiners can begin using cheaper ingredients to make gasoline because wintertime clean air rules are less stringent. That should push gasoline prices lower between Labor Day and Election Day, barring hurricanes that can disrupt supplies or other global events, says Kloza.
"History will be working on behalf of the Democrats," he said.
Wiseman contributed from Washington. AP Staff writer Charles Babington contributed to this report from Washington.
Jonathan Fahey can be reached at http://twitter.com/JonathanFahey .