Gasoline prices in Canada could rise to about $1.40 a litre within a few months if oil prices stay at current record levels and demand picks up for the summer driving season, oil industry observers say.

Average Canadian gasoline prices were more or less steady at 111.60 cents per litre on Wednesday, according to GasBuddy.com, a website that tracks retail gasoline prices in Canada and the United States.

But the cost of a barrel of oil surged to more than $104 US on energy markets on Wednesday after OPEC said it would keep global production steady for the time being, despite U.S. calls to step it up. On Thursday, it hit a record $105.97 US a barrel.

Investors who had also expected U.S. oil inventories to rise were also jolted by news that there was, in fact, a decline in U.S. stockpiles of crude.

Vincent Lauerman, a global energy analyst with the Calgary-based Geopolitics Central, said there is normally a lull in gasoline prices between the winter heating season and the summer driving season.

Like many analysts, he said pump prices could go as high as $1.40 a litre come summer should crude stay in the $100 US a barrel range.

Such a price would likely be a record for unleaded gas in Canada and surpass the $1.30 a litre level hit after the North American refinery shutdowns caused by Hurricane Katrina more than two years ago.

Demand picks up in summer

"Refiners are starting to think about the summer driving season and it's only a matter of time before demand picks up for transportation fuels, particularly gasoline and diesel fuel," Lauerman said.

"And with that we should expect significantly higher prices than we're currently seeing."

High fuel costs are already causing headaches across many North American industries, said Patricia Mohr, a commodity specialist at Scotia Capital.

"It is a real source of concern from manufacturing industries and even some resource industries, given that there are often surcharges on rail freight to basically pass along very high petroleum product prices. It really raises the cost of transportation," she said.

Airlines, whose No. 1 operating cost is fuel, have also been taking a hit, she added.

Roger McKnight, an analyst with the energy consulting firm EnPro International Inc. in Oshawa, Ont., said the effect has been "absolutely unbelievable" on the commercial transportation sector.

"Things are going to go from bad to worse considering that crude was about 40 per cent lower a year ago today," he said.

"In the eastern part of the country, there are people that have ordered new trucks and have simply left them in the lot. They're not picking them up."

Rising prices will hurt manufacturing

The rising cost of crude will further widen the gulf between Canada's oil-producing provinces and manufacturing heartland, said Derek Burleton, a senior economist with the TD Bank Financial Group.

"It's good news for the oilpatch and for those provinces that are net exporters of oil. It certainly poses a challenge for the rest of the country, which imports the product," he said.

"In provinces like Alberta, you get the offset. It will support corporate profits in the oilpatch. Overall, the region will continue to benefit."

But with high energy prices exacting a huge toll on the U.S. economy, Canadian oil producers might have trouble selling their energy south of the border down the line, he added.

Central Canada's squeezed manufacturing sector will be in for more suffering as the costs of producing and shipping everything from steel and auto parts to newsprint and machinery rises.

And the spike in oil prices could not come at a worse time for manufacturers in Ontario and Quebec, who have not only seen their costs rise but American demand fall.

"Earlier on in the decade when oil prices started to climb, you had an offset from robust U.S. demand but the U.S. economy is now in a funk," Burleton said.

Oil prices could retreat a bit in coming months, but the big "wildcard" is what direction the U.S. dollar goes, he added.

"Certainly the trend is in favour of high oil prices at the moment, but I can't understate the impact that the weakened U.S. dollar is having," he said.

"If the U.S. dollar continues to lose ground, then we could easily see oil prices rising quite a bit further."