Gasoline prices have dropped more than 20 percent in the past two months, providing relief to consumers and potentially propping up an economy that is showing signs of slowing. Industry experts say further price declines are likely.

The big driver is oil, which accounts for more than half the cost of a retail gallon of gasoline. Oil prices have been sliding since early August, tumbling 3 percent Monday and a further 4 percent Tuesday. Wednesday, oil futures settled at $59.41 a barrel in New York Mercantile Exchange trading, up 1.2 percent. Behind the drop in oil prices: easing geopolitical tensions in oil-producing countries like Iran, the end of the summer driving season and the exodus of some financial investors who had bid up energy prices.

But there are other factors afoot. Fuel prices were pushed up by hurricanes last year, which smashed into the U.S.'s refining belt, and by a bumpy transition to new federal requirements that gasoline have more ethanol content. Now, most of these supply interruptions have vanished, and inventories are at high levels.

The retreat in energy prices cuts across the entire sector. Along with oil and gas, heating-oil-futures prices on the New York Mercantile Exchange are 17 percent lower than a year ago and natural-gas futures are down 58 percent in the past year. Crude oil has dropped 5.4 percent and gasoline futures have fallen 21 percent over that same period.

A sustained drop in gasoline prices could give a hand to retailers, particularly those catering to lower-income customers. Still, despite a drop in fuel prices last month, Wal-Mart Stores Inc. said Wednesday that it expects to report just a 1.3 percent increase in September same-store sales, or stores open at least a year. Wal-Mart's shares Wednesday rose nine cents, or 0.2 percent, to $49.55 as of 4 p.m. in New York Stock Exchange composite trading.

Cheaper gasoline could also play a role in the coming elections. Nearly one-third of participants in a recent Wall Street Journal/NBC News poll said the dip in gasoline prices made them feel either somewhat more confident or much more confident about the economy.

Gasoline prices are volatile, and any number of factors -- ranging from refinery outages to geopolitical tensions in oil-producing countries -- could put them on an upward march again.

For now, most of the forces seem to be downward. The nation's refineries are operating at about 90 percent capacity, compared with 75 percent capacity at the same time last year after the hurricanes. U.S. gasoline stockpiles rose to 215.1 million barrels this week, 9.6 percent higher than the same week last year, according to the Energy Information Administration. "You can expect prices to keep falling. There is nothing in the fundamentals to indicate anything but a further decline," said Paul Sankey, an analyst with Deutsche Bank AG.

The average price of regular gasoline early this week was $2.31 a gallon. The 24 percent decline in gasoline prices since their peak of $3.03 in early August was the second largest since the Energy Information Administration began tracking data in 1990. Industry analysts say pump prices could dip as much as 25 cents in the next week or two as lower wholesale gasoline and oil prices work their way through the system.

The bulge in fuel inventories developed largely because of gasoline imports from Europe, attracted by soaring gasoline prices and high refining profits in the U.S. The imports arrived at about the same time the summer driving season ended around Labor Day, creating a glut of gasoline.

Many analysts also attribute much of the volatility in the gasoline market to speculators. Doug Leggate, an analyst with Citigroup Inc., says gasoline prices have closely tracked bets by futures traders over the past several years. In July, speculators expecting hurricane damage to Gulf of Mexico refineries placed heavy bets on a further surge in gasoline prices. But starting at the beginning of August, they began to unwind their positions, according to the Commodity Futures Trading Commission. When no storms had hit the coast by September, "a massive liquidation of gasoline contracts" began, says Larry Goldstein, president of the Petroleum Industry Research Foundation in New York, a consulting firm.

A chief influence on the selloff, analysts say, has been a decision by Goldman Sachs Group Inc. to reduce the weighting of gasoline futures in its Goldman Sachs Commodity Index, the market's largest commodities index.

At its meeting last month, the Organization of Petroleum Exporting Countries agreed to abandon output quotas for the time being, giving them flexibility to cut production as needed. This also postponed any decision on a new set of quotas, if needed, until OPEC's next meeting in December -- a process that could be contentious. Many of OPEC's influential members see the need to cut output only when prices fall below $55 a barrel or it looks as if prices are sliding uncontrollably. Wednesday, Saudi Arabia's ambassador to the U.S. said he didn't expect the cartel to hold an emergency meeting to discuss prices ahead of the December gathering.

Until recently, supply shortages had allowed U.S. refiners to get fatter-than-normal margins for turning crude into gasoline and other refined products. But the glut in gas has changed that. Independent refiners are earning an average of 65 percent less per barrel of gasoline than they were in July, according to a weighted average computed by Citigroup. The "crack spread," or the difference between the spot prices of crude oil and gasoline, fell to $6.61 a barrel last month from $19.13 in July.

The drop, while bad news for refiners, is good for the economy because it helps consumers save money and eases inflationary pressures. "Consumers will perceive their own financial situation more favorably, and it takes pressure off businesses to raise prices," said Richard Curtin, director of the University of Michigan's Surveys of Consumers.

For the typical American, relief at the pump will boost disposable personal income, a welcome development at a time when the broader economy is cooling under the weight of higher interest rates and a weakening housing market. Consumer confidence jumped last month when retail gas prices started to retreat, because money that used to go toward filling up the gas tank can now be used to buy other things. That won't necessarily boost the overall level of spending, but it will mean more is getting transferred from the oil industry to retail and other sectors of the economy.

Mass merchandisers and discount chains like Wal-Mart and Target Corp. may stand to benefit the most, because lower-income consumers spend a greater share of their income on gas, home-heating oil and other energy costs than wealthier households do. Recent research by economists at the Federal Reserve Bank of Chicago found that the poorest 25 percent of wage earners spend 9.2 percent of their income on energy costs, versus 6.7 percent for those in the top 25 percent income bracket. Thus, the recent drop in oil prices could help reverse a trend seen earlier this year when luxury goods were flying off the shelves, while discount chains complained gas prices were crimping sales.

Nigel Gault, an economist at the Massachusetts consultancy Global Insight, estimated consumer spending will get a $1 billion monthly boost for every sustained, 10-cent drop in the retail price of gasoline. That means the recent 70-cent drop in gas prices from August to September, if sustained, will free up $7 billion per month.

Still, energy prices have less effect on consumers than they did a couple of decades ago. The Chicago Fed study, for example, found energy costs accounted for 8.5 percent of total household spending last year, down from 11 percent in the early 1980s.

By contrast, economists expect the drop in oil prices to have a direct impact on inflation, perhaps producing a decline in prices for a short period. In leaving interest rates unchanged for the second consecutive time last month, the Federal Reserve's rate-setting board cited "reduced impetus from energy prices" as a reason why inflation will ease in the months ahead. Lower oil prices mean consumers could see fuel surcharges start to evaporate, and reduced prices on everything from airfares to plastic products made from petroleum.