Would You Pay $4 a Gallon?

May 2006 News

Gas prices could hit $3.50 a gallon this summer, according to a CIBC World Markets report, "Drilling in Troubled Waters."


The report says another severe hurricane season in the Gulf of Mexico this year would severely hamper oil production and drive crude oil prices to record highs.


The Atlantic hurricane season starts Thursday.


Because of this spike, boaters who buy gas at marinas could pay as much as $4.55 a gallon.


"Echoing 2005, stormy weather is likely to mean further pain for motorists at the gas pumps during the coming driving season," Jeff Rubin, chief economist and chief strategist for CIBC World Markets, said in a statement. "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 percent of the retail price of a gallon of gas, up from 47 cents two years ago, the report says, and crude oil prices are expected to increase by 10 percent through the fall.


"With the potential loss of as much as 750,000 barrels a day of production from storms this season, we will see the West Texas Intermediate easily tip its recent peak," Rubin said. "We expect the WTI to average $78 a barrel by the fourth quarter of 2006."


The report predicts U.S. domestic oil production will decline from the current level of about 7.3 million barrels a day to about 6 million barrels a day by 2010.


Canadian-based CIBC World Markets is the wholesale banking arm of CIBC, which provides a range of integrated credit and capital markets products, investment banking and merchant banking to clients around the world.


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