Against the background of high hopes for a return to normal with the end of the restrictions on COVID-19, this year can be determined by another worrying trend: rising gasoline prices.
Exceeding the national average of $ 2 per liter for the first time this month, the price of gas set a new all-time high in Canada, with the added tax coming at a time of record inflation and the beginning of often considered summer season. driving.
But what exactly is causing the increase and what are Canadians really paying for at the pump?
CTVNews.ca spoke with experts about what is included in the price of gas, the effect of improvement on high prices, about trends in diesel and how costs can dissuade consumers from driving at all.
THE PUMP
A number of factors play on the price that drivers see when charging their vehicles.
One thing that may come as no surprise is the price of oil. Due to the war in Ukraine, the price per barrel has risen in recent months, with global reference raw materials Brent Crude and West Texas Intermediate selling over $ 100 per barrel.
Russia is also the world’s third-largest oil producer, accounting for 11% of the world’s share.
“So we are at the mercy of international markets for better or worse,” Werner Antweiler, director of the School of Business Forecasting at the University of British Columbia, told CTVNews.ca in a telephone interview on May 17.
In addition to the price of oil, different margins also affect the price of gas.
These include the refining margin, which includes the costs of refining, storage and delivery. In particular, this is the difference between the price of crude oil and the wholesale price of gas.
This is followed by the retail margin that goes to petrol stations, and then the various federal, provincial and sometimes regional taxes that are added.
The Canadian Fuel Association says that in 2021, crude oil accounted for 39% of the price of regular gasoline, followed by 35% for taxes, 20% for refining and 6% for distribution and marketing.
Overall, the price of gas reacts quite quickly to changing oil prices, said Antoine, a point that other experts say is true. Competition between gas stations varies depending on where you live in the country, which may play a role in regional gas prices.
But price fixing or “collusion” is rare, Antoine said.
Drivers in Quebec can recall an example from 2008, when several companies and one person pleaded guilty and were fined in connection with a gas pricing scheme.
In practice, Antweiler said the retail margin for gas stations is relatively equal to about 10 cents a liter in most places where there is competition.
What is “special” now is the instability of the refining margin, which in the Vancouver region rose to about 70 cents per liter from 45 cents before, Antweiler said.
This stems from transport problems and capacity constraints.
“It’s not the gas stations or the retailers, it’s the wholesalers,” he said.
Roger McKnight, chief oil analyst for En-Pro, stressed that the country is not united on how to set gas prices.
Everywhere east of Thunder Bay, Ont., There will be a tendency to follow Wall Street traders, particularly oil futures, he said.
If the futures price rises one day, the price of the pump will usually follow 48 hours later.
West of Thunder Bay, the price of gas tends to follow the global price of crude oil more closely, with the exception of the lower mainland BC, which is more in line with wholesale movements in Seattle, Wash.
“So when you get to it, daily prices in Canada follow different markets,” McKnight said in a telephone interview on May 17.
SUPPLY AND DEMAND
After all, the issue is a classic case of supply and demand.
“Supply is very, very closely aligned with demand,” said Ian Lee, an associate professor at the Sprott School of Business at Carlton University in Ottawa, in a telephone interview with CTVNews.ca on May 17. “There is no gap in the system for using slang English.”
The COVID-19 pandemic significantly reduced gas demand, as blocking measures meant people worked mostly from home.
As more sectors of the economy reopened, gas demand rose sharply.
But Lee said oil producers have taken more time to increase production, with previous pandemic shutdowns making gas demand uncertain.
“We’re all paying higher prices than we should be due to the shortage at the refinery level, so that’s exacerbating the problem,” Lee said.
Like the housing crisis in Canada, he believes the solution is to return supply to the market. But in the short term, it “hurts like hell.”
The US Energy Information Administration, which is part of the US Department of Energy, publishes weekly reports on the state of oil.
His latest report, released on May 18, shows that crude oil inventories in the United States, excluding the Strategic Oil Reserve, fell 3.4 million barrels from the previous week, up 14 percent from 420.8 million barrels. the average for five years for this year. time of year.
Gasoline inventories are about eight percent below their five-year average, while distillate, which includes diesel, jet fuel and naphtha, is about 22 percent lower than the five-year average.
“So when your supply side is completely negative and your demand side is positive … in the end, the consumer will pay for it,” McKnight said.
The United States is also exporting oil from its strategic oil reserve to Europe, while Canada pledged to increase its oil and gas exports in March.
OPEC, or the Organization of the Petroleum Exporting Countries, has said it will not increase production to compensate for lost Russian oil, which a number of European countries, as well as Canada and the United States, are boycotting. OPEC and its allies, collectively known as OPEC +, include Russia, which is not a member.
Earlier this week, oil giant Saudi Aramco, which is 98% owned by the Saudi government, said its profits had risen by more than 80% in the first three months of the year, making it overtake Apple as the most valuable company. in the world .
DIESEL
The Utah State Capitol, behind, was shown behind an oil refinery on May 12, 2022 in Salt Lake City. (AP Photo / Rick Bowmer) Although the retail price of gas may be paramount for most consumers, what can be overlooked is the unusual jump in the price of diesel.
As diesel is used in the commercial sector, from heavy equipment to transport, this problem is perhaps the most worrying, Antweiler said.
“Diesel is the fuel of trade and so these costs will be passed on to consumers,” he said.
This is partly due to the lack of raw materials or the raw materials that refineries need, which Russia is the source of, which makes it much more difficult to refine diesel.
Refineries need natural gas to produce hydrogen, which is used in the refining process and has also become more expensive, Antweiler said.
Refineries tend to shift production to gasoline in the summer to meet increased demand, and diesel stocks are already low in 2022.
Refining capacity is also limited and declining in North America and Europe, Antweiler said.
“The bottom line is that the diesel market is complex and follows its own market logic, which is not the same as for petrol,” Antoine said in a follow-up email to CTVNews.ca.
“Most of the additional demand from Europe is shifting to North American markets. If refineries rush to produce more diesel, it will reduce gasoline production. So if diesel prices start to fall, they will rise even more. petrol. “
DESTRUCTION OF DEMAND
High gas prices seen in front of a medical billboard on May 11, 2022, in Milwaukee, Wisconsin (AP Photo / Morry Gash)
How drivers react to the constantly high gas prices is something that experts will monitor.
Lee predicts that if there is any reduction in gas demand, it will be the result of a “destruction of demand” caused by rising prices so much that it “literally kills some demand.”
With gas, people can drive less often, switch to smaller cars, use public transport, share travel, work from home, or possibly get closer to work.
But whether this drop in demand, which will be known by measuring the average kilometers traveled by Canadians, will not be known for another year, Lee said.
“That’s why I don’t think there are still riots in the streets at $ 2 a liter,” Lee said.
“As painful as it is, consumers’ reaction is grumbling, a lot of grumbling for sure, but it’s muffled, and I think it’s because consumers, individuals, are facing opportunities to mitigate the price effect.
“I think that if natural gas for home heating or home heating had risen by the same amount, I think you would have seen riots in the streets.
FROM HERE TO WHERE?
As for the price of crude oil, Antweiler does not believe it will exceed $ 120 a barrel unless something happens to make the situation worse.
Many operations were closed during the early part of the COVID-19 pandemic as demand fell and Antuyler said producers would be encouraged to increase production, although this would take time, meaning prices would remain high throughout the summer. .
For McKnight, the answer to when this will stop is less clear.
“I would be a multi-billionaire if I could answer that question,” he said.
However, he said governments could consider the HST and consider limiting the amount charged per liter of petrol.
This is an issue that Lee also raised, saying that governments can temporarily suspend certain taxes on gasoline.
Alberta has temporarily suspended the collection of its gas tax, which has slightly reduced inflation in the province.
Lee said he would not expect gas to cost more than $ 2 a liter a year from …
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