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Canadian gas prices will fall in summer
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The price of gas has declined since earlier this spring, and one analyst says gas should cost less than last summer.
What's with the price of gasoline? Consumers may be scratching their heads at the pumps wondering why Canadian petrol prices remain as high as they are, ranging anywhere from C$1.27 to $1.55 per litre.
South of the border, with U.S. oil production up by 20 per cent since 2008 and oil consumption down to levels not seen since 2001, they're also asking 'why are gas prices so high?'
"Part of the reason gasoline prices held up through April is likely just seasonal," explains Nathan Janzen, an economist at RBC in Toronto. "Gasoline prices in Canada typically peak in the spring and then decline through the summer, I believe due partly to differences in the formulation of winter versus summer gasoline."
Another factor, as highlighted by the Bank of Canada in its April Monetary Policy report, is the spread between the price of imported versus domestic oil prices widened sharply earlier this year.
"While a net exporter of crude oil, Canada still imports about half of the oil used in domestic gasoline production due to industry infrastructure that guides much of Canadian domestic production into the U.S. mid-west," Janzen says.
Meanwhile, concerns about geopolitical instability in the Middle East in the first half of 2012 caused oil prices in Europe to rise more than in North America, resulting in higher prices for imported relative to domestically produced oil.
"This spread likely contributed to domestic gasoline prices rising higher than what would normally be implied by domestic oil prices (WTI: West Texas Intermediate — the bellwether crude for North America)," he adds.
Patricia Mohr, vice-president and commo
dity market specialist at Scotiabank in Toronto, says the average price of gasoline in Canada is declining and that it's likely to continue to do so throughout the second quarter.
"The prices across Canada have moved down fairly substantially from a peak in the middle of April of almost $1.35 per litre to about $1.27 per litre in June," she says. "I'd expect in June prices for gasoline in Canada will probably move down further. It won't necessarily be a huge decline but I'd guess three to five cents in any case."
Reason being, both WTI prices and international benchmark crude oil prices (such as Brent crude) continue to fall.
"That'll be with a lag reflected in gasoline prices at the pump. There are many crudes that make up the basket of crudes that make up the refining system across Canada," she says. "There's a big difference between the prices paid for crude in Montreal East and prices paid in Western Canada. But generally, lower prices for crude oil in June should lead to lower gasoline prices."
Jason Toews, a petroleum expert and co-founder of GasBuddy.com in Regina, agrees the prices at the pumps nationwide are on the slide, even though it might not seem like it to the average driver.
"We will see lower gas prices this summer than last summer. Today, the average price is 125.7 per litre and a year ago it was on average 126.3, so slightly lower than at this time last year," he says. "Gas prices certainly aren't cheap, not by any stretch of the imagination. But it is relative. When gas prices go up and then come back down, the percentage of people that think gas prices are expensive, is lower. We become desensitized to high gas prices."
Toews adds in 2005, you'd never see gas prices go above $1 per litre. "Now, $1 per litre seems cheap to most people."
RBC's Janzen says though gasoline prices are still high right now they have been falling. The average pump price fell almost four per cent in Canada in May and he too says it looks set to decline further in June.
"The recent declines do likely reflect, in large part, declines in oil prices globally," he says. "As well, the spread between European and North American benchmark oil prices has moderated (European oil prices have fallen more quickly than North American prices) which provides some further support to the drop in gas prices."
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