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COLUMBUS, Ohio - Oil prices hit levels yesterday not seen in more than three years and retail gasoline prices are now below US$2 a gallon across nearly half of the United States on dour economic reports.

Benchmark crude fell as low as $48.50 a barrel on the New York Mercantile Exchange -- levels last seen on May 18, 2005, when oil hit $46.80 a barrel -- but settled at $49.62, down US$4 for the day.

Meanwhile, gasoline prices at the pump have fallen to about US$2 a gallon (52.8 cents US per litre) in the United States, with the average price in 23 states even less than that.

"After this summer, this is wonderful ... wonderful," said Anuj Dayal, a cab driver in New York's Hell's Kitchen neighbourhood. "I hope gas is $1 soon. I hope it's free."

Nationally, U.S. gasoline prices have been halved since reaching a record above $4 in July, but relief from record crude prices have come amid a global economic meltdown.

In Canada, the price averaged 87.09 cents Cdn per litre yesterday, according to price-watching website Gasbuddy.com.

New claims for unemployment benefits in the United States jumped last week to a 16-year high and U.S. stock markets hit multi-year lows.

"Until we get past this malaise and gloom and doom, no one wants to step up and buy this market," said Mike Zarembski, senior commodity analyst at OptionsXpress.

The U.S. government said Thursday that new applications for jobless benefits exceeded estimates of Wall Street economists, rising to a seasonally adjusted 542,000 from a downwardly revised figure of 515,000 in the previous week.

A survey of economists by Thomson Reuters expected 505,000.