Crude falls below $78 a barrel

Cheaper oil is bright spot in financial crisis

Oil traders in the options pit of the New York Mercantile Exchange. (Mary Altaffer/Associated Press)

The price of crude oil fell to its lowest level in more than a year yesterday, which should lead to further gasoline and heating oil savings for Massachusetts consumers.

Crude oil, which peaked at about $145 a barrel during the summer, dropped $8.89 to close at $77.70 on the New York Mercantile Exchange.

On Monday, AAA Southern New England reported the average price of gas in the state was about $3.33 a gallon. The last time crude was selling for under $80 a barrel, the average price of gas in Massachusetts was $2.66 a gallon, according to AAA, an indication that the current drop in crude has not yet been fully passed on to consumers.

Meanwhile, the average price of home heating oil in the state averaged $3.57 a gallon Tuesday, down from its high of $4.71 in July, a 24 percent decline, according to the state's Department of Energy Resources. But the average home heating oil price in Massachusetts is still nearly 30 percent higher than a year ago.

Few are cheering plummeting crude oil prices, however, because they are tied to the panic sweeping the world's financial markets. Prices have largely been driven down by decreased demand and fears of a global recession.

"If it were just energy prices coming down, people could be starting to feel good, but this is energy prices coming down in a worldwide economic slowdown," said Philip Giudice, commissioner of the state Department of Energy Resources, who stressed that consumers should still strive to be more energy-efficient.

"The long-term picture for energy hasn't changed," he said. "We are facing a world where supplies will be tight."

Mary Novak, an energy analyst with the Waltham forecasting firm Global Insight, said she worries that the ailing economy means people will still struggle to pay for gas and heat.

"If your ability to pay your heating bill has been undermined, even if the price is what it was last year, the percentage of your income [taken up by that cost] is going to be higher," Novak said.

Some analysts say crude oil prices can still go significantly lower. The cost per barrel could eventually sink to $67.65, according to Daniel Flynn, an energy trader with Alaron Trading Corp. in Chicago.

"I haven't seen anything like this since the crash of '87. In fact, this makes the crash of '87 seem like a walk in the park," Flynn said. "This fall has a lot to do with the stock market being in shambles."

Michael Ferrante, president of the Massachusetts Oilheat Council, a trade association, was more optimistic.

"I think it's continued good news for consumers, there's no question, and the oil heat industry," Ferrante said. "No one knows where this is going, but it's been an interesting week or two."

But if costs remain low, Ken Williams of Scott-Williams Oil said, he should be able to reduce his customers' budget payments in the next few months.

Still, Williams called the price drop "one of those double-edged swords."

"We are very, very pleased and relieved that oil prices are going down," he said. "We are not pleased that they may be [dropping] at the expense of the greater economy."

Erin Ailworth can be reached at eailworth@globe.com