Falling gas prices reflect break from adversity

PATRICK BRETHOUR

CALGARY — Pump prices have dropped below $1 a litre for the first time in five months -- and the cost of a fill-up is likely to drop even more in coming weeks.

It is a precise reversal from this time last year, when hurricane Katrina battered the U.S. Gulf Coast and devastated refineries in the region. Then, tight supplies swelled the wholesale cost of gasoline -- and the coffers of big oil companies -- and sent pump prices soaring to unprecedented levels in North America, as high as $1.39 a litre in Canada.

But this week, hurricane Ernesto was downgraded to a tropical storm and veered away from the refineries and oil fields of Texas, Louisiana and Mississippi. (Last night, it made landfall in Florida, drenching southern counties but causing little damage.)

With last year's disaster scenario averted, oil prices yesterday dipped to their lowest level in more than two months -- an indication of further declines in the cost of gasoline.

The refineries are safe, gasoline inventories are healthy and the margins for oil companies are falling fast. And that gives consumers, hammered by pricey gasoline for much of the last year, a long-awaited break at the pumps, courtesy of the squeeze on industry profits.

Gasoline prices are likely to fall even further, since the summer driving season is gearing down, and the cost of crude oil is drifting downward. "I suspect there's more to come," said Cathy Hay, an analyst at M. J. Ervin & Associates Inc.

Already prices have dropped substantially across Canada, according to the weekly survey by M. J. Ervin. Nationwide, the average cost of a litre of regular gasoline dropped to 96.9 cents, the lowest price since March 14.

The biggest decline was in Victoria, where pump prices fell 8.8 cents a litre. But motorists in Hamilton enjoyed the cheapest gasoline in the country, according to the M. J. Ervin survey, paying just 88.7 cents a litre. Elsewhere in the competitive Southern Ontario market, Toronto declined to 88.9 cents a litre.

In Labrador City, however, where prices are set by a government agency, a litre of gasoline still costs $1.204, unchanged from last week and the priciest in the country.

Ms. Hay said she believes that prices have room to fall in Newfoundland and Western Canada. Calgary and Edmonton, despite being located in oil-rich Alberta, had far higher prices for gasoline than in the East. In Calgary, a litre cost 98.8 cents, while Edmonton drivers got a slightly better deal, at 97.8 cents a litre.

The decline in gasoline prices is just one part of a larger drop in the cost of energy in recent days, as the fears ease of calamitous weather in the United States and apocalyptic confrontations in the Middle East.

Ernesto has turned out to be more bluster than disaster, deflating concerns that hurricane seasons were becoming consistently more destructive, said Kyle Cooper, director of research at IAF Advisors in Houston.

Another major hurricane could yet batter the U.S. coast, but Mr. Cooper said refining operations are better prepared than a year ago, with backup generators and stockpiles of repair materials at hand.

On the political front, the end of intense violence in Lebanon has dampened pressures on crude prices. Even the looming confrontation between Iran and the United States over the former's uranium-enrichment efforts could not halt yesterday's slide in oil prices, which fell below $70 (U.S.) a barrel for the first time since June.

"The tensions in Iran are going to be there for a while, but for now there's nothing that says there's going to be any threat to our supply," said Olivier Jakob of Petromatrix.

And another bogeyman of oil traders from earlier this month was partly banished yesterday, when BP PLC said it had restored output from its Prudhoe Bay field in Alaska to about 200,000 barrels a day, half the capacity lost when the British oil giant said corrosion had forced it to curtail production.

Mr. Cooper said oil prices could drop another $20 a barrel, if the relative calm holds and deprives speculators of a rallying point to send crude soaring again.