Bank report predicts Canadian drivers could pay $1.30 per litre this summer
A CIBC report (TSX:CM) predicts that another active hurricane season could push the cost of regular gasoline to $1.30 per litre. CIBC World Markets chief economist Jeff Rubin says a repeat of last year’s vicious hurricane season in the Gulf of Mexico could severely hamper oil production and drive crude prices to record highs.
And like last September, record oil prices would likely lead to new highs at the pumps - with the CIBC predicting $1.30 per litre of regular gas, or $3.50 US per American gallon.
Rubin says higher energy costs will leave less money in peoples’ pockets to spend on other things, dragging down the economy and eventually changing the way Canadians drive.
“In the short run, you’re driving the car you have,” said Rubin. “Certainly, people are going to be driving very different types of cars five years from now than what they’re driving right now.”
Earlier this week, scientists predicted that this year’s hurricane season - which runs from June until the end of November - could produce up to 16 named storms, six of them major hurricanes.
While the report isn’t expecting this year to be quite as bad as 2005’s record of 28 storms, last year’s forecast called for only 12 to 15 storms, or less than half of the number that eventually raged in the Atlantic ocean.
The bank report called for the benchmark West Texas Intermediate crude to average $78 US per barrel by the final three months of the year - significantly higher than the $75-per-barrel record reached on April 21 amid fears of production drops from Iran and Nigeria.
“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 easily top its recent peak,” Rubin said Wednesday.
Last summer, hurricanes led to huge production setbacks for new U.S. oilfields and construction delays for newly planned projects. They also shut down existing production and much of the industry’s service infrastructure along the Gulf Coast.
As a result, gasoline prices spiked at the end of last summer, with Canadian drivers paying a record average of $1.26 per litre of regular gas.
This week, the Canadian average dropped 2.1 cents to $1.03 per litre of regular gas, according to a weekly survey by Calgary-based consultants M.J. Ervin & Associates.
But that still represents an 18 per cent increase in the cost of fuel over the last year alone.
“Our jumping-off point is significantly higher this year,” Cathy Hay, a senior associate at M.J. Ervin, said Wednesday.
Still, Hay said the refining industry has always had to deal with hurricanes, and a busy storm season does not automatically mean a detrimental impact on crude production or the refineries in the Gulf of Mexico.
“If there was an impact that was of similar magnitude to last year … prices could jump that high and higher. There’s no ceiling,” she said.
“But for someone to be able to speculate as to what kind of damage might occur, it’s a ridiculous concept.”
Dan McTeague, the Liberal consumer affairs critic in Ottawa and longtime opponent of the oil industry, questioned the bank report and said Wednesday that global energy suppliers would be willing to make up for any shortfalls this year if there’s similar disruptions in North America.
“There’s no doubt there’s tremendous volatility,” McTeague said Wednesday. “To say that we’re going to wind up with the same prices as we did last year over the summer is alarmist, is speculative and borders on outrageous.”
The CIBC World Markets report, entitled Drilling in Troubled Waters, predicts that U.S. production will decline from about the current level of 7.3 million barrels per day to about six million barrels a 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 massive production increases in the northern Alberta oilsands.
“The failure of Gulf of Mexico production is going to make the U.S. even more dependent on the ability of Canada to grow its oilsands production,” said Rubin.
News from (c) The Canadian Press