Falling oil prices offer a bit of relief

Amid the economic downturn, there is one upside for consumers: Fuel prices are falling.

"If there's a silver lining in all this bad news and the terrible beating everyone is taking in the stock market, it's at least that the gas prices are coming down," said AAA Southern New England spokesman Arthur Kinsman. AAA yesterday reported that the average price of gasoline in Massachusetts fell 15 cents last week, to $3.33 a gallon.

Meanwhile, crude oil dropped $6.07 - 6.5 percent - to close at $87.81 on the New York Mercantile Exchange. It's the lowest price in eight months, and about 40 percent below a peak of $145 a barrel in the summer. Kinsman and other industry observers attributed the drop to decreased demand brought on by high prices and worldwide economic concerns.

But that doesn't mean consumers are getting a bargain at the gas pumps, Kinsman added.

"Keep in mind that we are paying considerably more than we were at this time last year," he said, noting that prices are still about 24 percent higher than a year ago, when a gallon of gas averaged $2.68.

Home heating oil prices in Massachusetts, which peaked at $4.71 a gallon in July, have also fallen, but remain about 30 percent higher than they were a year ago. The state Department of Energy Resources is expected to say today that heating oil now averages $3.55 a gallon.

Several industry watchdogs say there's a mixed message in yesterday's crude oil decline. Cheaper oil and gas may look good now, they said, but it indicates traders see tougher times ahead.

"The forward market is looking at where demand will be in the next four to eight weeks, and they are now saying they expect a drop in demand because of higher unemployment and a drop-off in consumer spending. So it's driving the entire market down, that pessimism," said Mary Novak, an energy economist with the Waltham forecasting firm Global Insight. Novak said Global Insight believes the price of oil could drop as low as $75 to $80 a barrel - on par with last year's prices.

"It would be better for us all if the economy was doing better and we had to pay somewhat higher gas prices," she said.

But others were more optimistic.

"The economy is in the tank so demand is down. [Still] it's a good thing that gas prices are going down, and, hopefully, heating oil prices will follow," said Paul O'Connell, executive director of the New England Service Station and Auto Repair Association. "It's going to help the consumer." In July, gas prices in the state averaged $4.09 a gallon.

At Alvin Hollis Co., a fuel oil dealer in Weymouth, owner Len Bicknell cautiously cheered lower prices. Earlier this year, researchers at the University of Massachusetts' Donahue Institute were predicting that residents who heat with oil could see bills over $3,000 in 2009.

"I think it's great it's coming down," he said of the price of a barrel of oil, which is used to calculate home heating oil prices. "I don't know what to expect next."

On Monday, Bicknell said a gallon of heating oil was selling for about $3.58. Earlier this year, his company calculated budget-payment plans for its 10,000 South Shore customers based on a $3.50 a gallon price.

"If it goes lower, we can reduce those payments," he said.

Philip Giudice, head of the state energy resources department, said Massachusetts residents should remain vigilant about reducing energy use.

"Thankfully, they don't have to potentially be in the same panic mode as people were a month ago, two months ago," he said. "But boy, I would still be thinking hard about this."

Erin Ailworth can be reached at eailworth@globe.com.