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Report: Oil Prices Expected to Hit New Record Highs This Summer |
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Written by Wire
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Wednesday, 24 May 2006 |
Gas prices could hit C$1.30 per litre or US$3.50 per gallon this summer, according to a CIBC World Markets report issued today, entitled Drilling in Troubled Waters. Another severe hurricane season in the Gulf of Mexico this year, as forecast by the U.S. Weather Service, will likely severely hamper oil production in the Gulf and drive crude prices to record highs.
Jeff Rubin, Chief Economist and Chief Strategist, CIBC World Markets warns that another active hurricane season will cause further pain at the pumps for motorists as more of their disposable income goes toward transportation. Increased gas prices will contribute to slower economic performance in the second half of 2006.
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 just 47 per cent two years ago. "With the potential loss of as much as 750,000 barrels per day of production from storms this season, we will see West Texas Intermediate (WTI) easily top its recent peak," adds Mr. Rubin. "We expect WTI to average US$78 per barrel by the fourth quarter of 2006."
Last year, hurricanes adversely hampered oil production in two ways. First, they led to huge production setbacks for new fields and construction delays for newly planned projects. Second, existing production was shut down, as was much of the industry's service infrastructure along the Gulf coast.
Domestic oil production in the U.S. will likely continue to struggle, as sea temperature anomalies are expected to lead to a severe 2006 hurricane season. The steady warming of sea surface temperatures in the Gulf of Mexico since the 1970s is highly correlated with an over-doubling in the storm intensity of hurricanes over that period. Ahead of the June 1 start of hurricane season, temperatures in the Gulf of Mexico and tropical Atlantic are again well above normal, heightening the risk of production outages.
The report predicts that U.S. production will decline from about the current level of 7.3 million barrels per day to about 6.0 million barrels per day by 2010. While U.S. dependency on foreign oil is expected to grow, Canada is alone among its current suppliers as a country in a position to significantly increase oil exports to the U.S. marketplace, largely as a result of Canadian oil sands production. |
