5 reasons why gas prices are set to go up in Canada — and fast
It's almost driving season, and the pipeline dispute in Alberta & B.C. could make a bad situation even worse
The price of filling up a tank of gas is a classic Canadian irritation. But a confluence of factors may soon make that process even more gobsmacking than usual.
Here's a look at five reasons gas prices are soaring.
A big one is that gas prices always rise around this time of year. "Usually we see a gasoline demand spike in the second week of June," GasBuddy.com's senior petroleum analyst Dan McTeague says.
While few people put any thought to it on a fill-up, the chemical composition of gasoline is different in summer than it is in winter because the fuel is adapted for different weather conditions. Refineries have to calibrate their systems to handle the different makeup, and that normally happens this time of year. Often they shut down for a few days to make the switch, which pushes prices up even more due to the temporary dip in supply.
Summer is generally a more popular season for driving (think: road trips), so increased demand for gas plus added costs for refiners add up to higher prices at the pump. McTeague says all things being equal, we'd normally see a jump of "anywhere from five to 10 cents a litre for summer driving."
But this is no normal summer driving season, partly because of what's happening south of the border.
2. Blame the U.S.
Contrary to what many consumers assume, Canada doesn't produce and refine much of the gasoline consumed in the country, so prices here are heavily dependent on refiners in the U.S. And gasoline demand is rising just about everywhere in the world right now, so Canada has to pay more for its share.
"Prices in Canada aren't established in Canada; they're made in the U.S.," says Roger McKnight, chief petroleum analyst with En-Pro. "So whatever happens to the wholesale price in the U.S. automatically hiccups into Canada."
Thanks to recent U.S. rule changes, U.S. refineries are now free to sell their product to anyone. "The offshore market is much more profitable, so to counter that, the refining margins have to go up to make it attractive to supply the domestic market," McKnight says.
"Refiners are not ethical altruists, and they go where the buck is bigger."
Crude prices are rising to their highest level since 2014, and that's obviously being passed on to consumers at the pump. For every $2 increase in the price of a barrel of WTI, Canadian gasoline prices generally go up by about 1.2 cents a litre, McKnight says. But that's not an iron-clad rule because different Canadian regions are priced based on conditions at different parts of the U.S. supply chain.
And there are other issues at enough of those chokepoints that the whole market is feeling it.
3. Pipeline problems
No pipeline problem is bigger, of course, than the current spat between Alberta and British Columbia. B.C. recently started a ruckus by vowing to block Kinder Morgan's pipeline that would take Alberta energy products across the B.C. border to the west coast for export. Alberta has responded by threatening to turn off the taps to B.C.'s domestic market.
'You're talking about 60,000 to 80,000 barrels of gasoline, diesel and jet fuel," McTeague says. "That represents anything from 60 to 75 per cent of all the fuel used in B.C."
Fears of running dry are leading to predictions of an eye-watering $2-per-litre price for gasoline in B.C. if Alberta makes good on that threat. "But it would mean more than just price hikes," McTeague says. "You'd also see rolling shortages of gasoline.
"It would be quite a disaster from an economic point of view."
Ironically, even Alberta wouldn't be immune: $1.40 a litre is "well within range for Calgary," McKnight says. "But $1.50 is probably out of the question."
4. Rail strike
Ordinarily, refiners do what they can to pick up the slack when one region is knocked back by a hurricane or some other disaster. And when pipelines are shut, often a lot of that oil gets diverted to the rail system to haul. But the rail system has its own problems at the moment.
The major rail companies were already warning about network bottlenecks during the fall and winter, and that was before two unions for engineers at Canadian Pacific this week served the company a strike notice that could go into effect before the weekend.
A major rail company being able to ship even less than it is now will do nothing to help yawning supply imbalances in the energy market.
"If the rail strike goes on, that means you can't get crude out of the province by rail either," McKnight says.
"Things could get very interesting indeed — I think they would probably be legislated back to work by Mr. Trudeau if it's a national situation."
And all this comes on top of another frequent culprit: the Canadian dollar.
No matter where they originate, oil products are priced in U.S. dollars. And the Canadian dollar has been the worst performing major currency against the U.S. this year — which may actually mean more money for Canadian oil companies when they convert those U.S. dollars back into loonies, but it's definitely not good news for gas buyers at the pumps.
The pipeline problems outlined above would send the Canadian benchmark oil price known as Western Canada Select even lower, which would drag the loonie down with it. "And if the loonie does a swan-dive, that's going to boost pump prices as well," McKnight says.
McTeague says a wobble of even a few dollars in the price of WCS could push the loonie down several cents, something Canadians across the country would feel each and every time they fill up.
"Anyone who thinks they'd be immune to this would have to think again," McTeague says.