May 25, 2006
Severe hurricane season could push gas to $1.30 per litre, report says
Toronto, Ontario – A report issued by CIBC World Markets speculates that gasoline prices could hit $1.30 per litre this summer, if a severe hurricane season forecast by the U.S. Weather Service hampers oil production in the Gulf of Mexico and drives crude prices to record highs.
“Echoing 2005, stormy weather is likely to mean further pain for motorists at the gas pumps during the coming driving season,” says Jeff Rubin, Chief Economist and Chief Strategist, CIBC World Markets. “The resulting drag on disposable income is expected to contribute to slower performance from the economy in the second half of the year.”
At today’s retail prices, crude oil costs account for about 60 per cent of the retail price of a gallon of gasoline, up from 47 per cent two years ago. Crude oil prices are forecast to increase by 10 per cent through this Fall, combined with decreased production capacity and already lower-than-average inventories. Rubin says that with the potential loss of as much as 750,000 barrels per day of production due to storms this season, oil is expected to average US$78 per barrel by the fourth quarter of 2006. The report predicts that U.S. production will decline from the current level of about 7.3 million barrels per day, to about 6.0 million barrels per day by 2010.