Drivers could face more wallet-draining as they fill up their cars this spring, and any lasting relief from lower crude prices, which fell five per cent Wednesday, could take months to trickle down to the gas pump, energy analysts say.
While short-term fluctuations in crude prices don’t tend to impact retail fuel costs, a more prolonged dropoff would help ease the strain on cash-strapped consumers.
Crude oil futures dropped $5.67 to US$98.21 a barrel and gasoline futures sank nearly eight per cent Wednesday after the CME Group market raised daily trading limits for crude, gasoline and heating oil futures Wednesday.
“If history is any guide, a drop in the global price of crude oil, if sustained and persistent, will eventually filter into weaker gasoline prices at the pump for Canadians,” CIBC Economics energy analyst Emanuella Enenajor said in a report.
Such a trend downwards would be great news for consumers, who had to cope with even higher pump prices Wednesday in many parts of the country. Regular unleaded gasoline approached a record in many markets and went as high as $1.50 a litre in some Ontario communities.
The rise in pump prices comes even as crude oil prices have fallen nearly 15 per cent in just over a week.
Crude had earlier jumped more than 30 per cent since mid-February to hover near a recent high of $114 a barrel last Monday, but the latest price is still well off the record price of $147 recorded in 2008.
The last time gas took a major spike, in 2008, analysts began to see a clear decline in pump prices once the crude oil price was more than 20 per cent below its peak, and declining for about two months, Enenajor said.
The reasons for the rising price of gasoline vary — ranging from higher crude prices on the back of a falling U.S. dollar and Middle Eastern political instability to speculation in wholesale markets.
As well, there are fears that refinery closings in the U.S. Gulf states from springtime flooding on the Mississippi River could cut gasoline supplies. In Canada, new consumption taxes on gasoline have raised the price since last summer.
But a sustained decline in crude prices, largely tied to demand and inventory levels, is far from a given. The American Petroleum Institute reported Wednesday that the supply of refined gasoline is getting tighter with U.S. inventories dropping for 11 straight weeks.
There has been a steady rise in wholesale gas prices and refiners’ profit margins, known as “crack spreads,” as oil supplies tighten just as peak summer driving season approaches, said Jason Parent, a senior partner at energy consultancy The Kent Group.
“It’s a supply and demand thing — as inventories get drawn down and players need to make up their inventories, prices tend to get bid up.”
While oil prices are driven by the ability to pull crude out of the ground and global energy demand, refiners try to gauge how demand for their product will be affected by factors such as weather, seasonal driving and refinery capacity. Then they set what they will charge retailers based on that demand forecast.
Those margins — which sit at multi-year highs — should decrease going forward, and crude prices should remain about flat, he projected.
“All things being equal, if crude prices stay on the tangent they’re on now we’re likely to prices diminish a little over the summer.”
Enenajor also said she believes crack spreads will return to more historic levels following spring refinery maintenance and weather-related disruptions that could see pump prices temporarily elevated.
“That could give consumers some relief, even if global petroleum prices don’t follow a smooth downward trajectory,” she wrote.
Even if prices remain elevated, Parent doesn’t believe there will be a consumer revolt over higher pump prices any time soon.
“The threshold for what people will or will not pay for gasoline can vary dramatically,” he said, adding that drivers are more likely willing to pay more when times are good than in the midst of a recession.
And while consumer demand did drop off following the spike in 2008, he said, but noted that the economic climate was very different as the global financial downturn also took its toll.
“It’s a very inelastic commodity, people have to get to work and drive their kids to soccer whether its a dollar or $1.40, so demand isn’t impacted as significantly by price changes as with some commodities.”
Consumer demand for vehicles is showing no signs of gas price fatigue, as auto sales have risen steadily in the opening months of this year.
But rising pump prices do appear to be affecting at least some consumers’ choices.
Automakers have noted that growth is being driven by demand for smaller, more fuel-efficient cars.
Meanwhile, sales of Vespas and other scooters have nearly tripled in the past six weeks, with about 90 per cent of the increase driven by consumers wanting to scale down due to higher gas prices, said Clem Ryan, sales manager at Motoretta in Toronto.
GasBuddy.com pegged the average across the country at $1.33 a litre Wednesday morning but in many places drivers were paying much more and the trend suggested they’re on the rise.
In Toronto, a litre of regular was going for as much as $1.44. In Ontario as a whole, prices were up more than two cents overnight.
The highest prices in that province are being reported in Northern communities — in towns like Timmins and Wawa — and are hovering as high as 149.9 cents a litre in Pointe-au-Baril on Georgian Bay, according to the price monitoring website Gasbuddy.com.
The inclusion of the harmonized sales tax on pump sales in that province has added another 11 cents a litre to the cost of gasoline at current retail prices.
But Ontario Premier Dalton McGuinty says the HST isn’t the reason gasoline prices are soaring and pointed out that it’s not the HST that’s driving up prices gasoline prices in Vancouver and Montreal, which have higher prices than Toronto.
He said prices are up at the pumps because of speculation in international oil and gas markets, adding that any cut in provincial taxes on gasoline would be immediately filled by the gas companies, so prices won’t drop.
Gas was excluded from the HST in British Columbia, where drivers already pay a carbon tax on gas.
In St. John’s. N.L., motorists were paying up to $1.43 and in Vancouver a litre was hitting as high as $1.47.
In New Brunswick, where they’re at their highest level in more than two years, a Liberal member of the provincial legislature is calling on the government to reverse a 2.9-cent-a-litre increase in gas taxes imposed in its March budget.
Prices in Quebec jumped four cents overnight to an average of $1.41 across the province. Drivers in Montreal paid as much as $1.48, while those in Quebec City reported prices as high as $1.38.
Oil-rich Alberta’s average price was lower than most at $1.21, and had changed little from Tuesday. However, drivers in Calgary paid as much as $1.30 and Edmonton drivers report top prices around $1.29 a litre.