Heating oil prices tumbling in N.E.

For the first time in years, New England residents head into winter with a chance of paying less for heating oil than they did the previous year.

The unusual prospect is the result of a nearly 25 percent decline in world oil prices from the summer's record highs, a shift in market psychology that analysts said could help stabilize energy prices, a weakening global economy, and the highest level of petroleum inventories since 1998.

"Some balance has been restored, at least for the time being," said Len Bicknell, president of Alvin Hollis & Co., a heating oil dealer in Weymouth.

Gasoline prices are down, too. In Massachusetts, average gasoline prices have plunged 89 cents a gallon after spiking to more than $3 this summer, and prices are 35 cents lower than they were a year ago, according to the Massachusetts Division of Energy Resources. Average heating oil prices are down more than 20 cents a gallon from the summer peak and 14 cents from 2005.

For natural gas consumers, however, it's a mixed bag. NStar Corp. is cutting charges 18 percent for its 300,000 gas customers in Massachusetts but other utilities will charge a bit more.

Many consumers expressed relief. Shane Norton, a Medford business consultant, recalled agonizing this summer over whether to lock in his heating oil price for the season at about $2.65 a gallon, or take his chances in the market during the winter. Ultimately, he gambled that prices would not go any higher.

"I can tell you I'm feeling a whole lot better than I did a few months ago," said Norton, whose oil dealer is now charging $2.25 a gallon. "I'm certainly feeling better than I did going into last winter."

Norton said filling up his Mazda Protege now costs about $28, compared with about $40 in midsummer. As a result, he said, he and his wife, Gail, are less concerned about going out for dinner every once in a while, and less worried about buying a bigger car to accommodate their son, born eight months ago.

The change in sentiment among consumers, economists, and professional energy traders reflects a dramatic turnaround from summer, when crude rocketed toward $80 a barrel and some analysts predicted that prices would hit $100. Driving expectations were fears of supply disruptions as western powers tangled with Iran over its nuclear program, Israel went to war with the radical Islamic group Hezbollah, and another hurricane season threatened oil platforms in the Gulf of Mexico.

Energy prices are a volatile commodity and the outlook could change overnight if Middle East conflicts flare or a long stretch of frigid weather strains supplies. On Friday, crude prices rose more than $1 a barrel to $59.14 on concerns of renewed tensions in the Middle East and unrest in Nigeria, also a major oil producer.

According to many market analysts, crude prices will stabilize near $60 a barrel through the end of 2006, then gradually decline. Moody's Economy.com, a research firm in West Chester, Pa., projects crude will slip to $45 a barrel by the end of 2008, a level last seen in summer 2004.

One big reason is supply and demand. With the worst fears of the summer unrealized, oil kept flowing and inventories increased. At the same time, the economy has been slowing, reducing demand for oil. In the United States, for example, the economy has downshifted dramatically, from an annual growth rate above 5 percent in the first quarter to less than 2 percent in the third quarter.

"Slower growth means slower demand for oil," said Jason Schenker, an economist at Wachovia Corp. in Charlotte, N.C. "Instead of pricing a chance of a doomsday scenario, the markets are now pricing the possibility of a recession."

The last time heating oil prices fell year-to-year ahead of winter was in 2001, a time when the economy was also slowing. A slowing global economy precipitated oil price collapses in 1986 and 1998, as oil-producing nations continued to pump at a strong pace while demand slackened.

Few analysts are predicting a similar collapse today. But analysts say the shift in market psychology, from fearing shortages to worrying about gluts, has kept prices contained.

To illustrate the change, Rakesh Shankar, Economy.com's energy analyst, noted recent announcements that production in newly developed oil fields in the Gulf of Mexico and Central Asia would be delayed by a year. In midsummer, such announcements probably would have sparked another rise in prices, but this fall they had no effect, he said.

"Supply has exceeded demand, inventories have been building, and the cushion is bigger," said Jim Burkhard, managing director of the global oil group at Cambridge Energy Research Associates. "In the summer, the market was only looking at the upside to prices. Now that the fear factor has diminished, the market is looking at the upside and downside."

If the pressure stays on the downside, it could provide a small boost to the economy. At Tweed's Pub Restaurant in Worcester, owner Jim Donoghue credits lower gasoline prices for a rebound in his business. When gas prices peaked in July, the lunch crowd dwindled and tables in the 150-seat restaurant stayed empty. Overall sales went flat.

But gas prices fell and lunchtime bustles again. In each of the past two months, overall sales rose 9 percent from the previous year.

"The average commuter, if they were spending $40 a week on gas, they're now spending $30," said Donoghue, noting the savings is enough to cover the restaurant's $6.99 soup-and-sandwich lunch special. "Everybody lives on some kind of a budget, and people seem to be more at ease."

Robert Gavin can be reached at rgavin@globe.com.