Gas price jump 'doesn't make sense'
No rational reason why pump prices in some areas increased by as much as 9 cents overnight
Drivers looking for a good reason for major gasoline price jumps across Canada overnight will be left lacking, as the usual seasonal influences don't add up to those types of increases.
Montrealers woke up to eye-popping price hikes of more than nine cents per litre Wednesday morning. At an average price of $1.53, the city now has the dubious distinction of having the highest gas prices in Canada, according to website TomorrowsGasPriceToday.com.
Other cities sawsimilar hikes. In Regina and Edmonton, prices went up by an average of five cents per litre. In Calgary and Quebec, the jump was four cents. Vancouver now has the second-highest prices across Canada at $1.51 a litre, while Toronto is looking comparatively cheap, at $1.40 a litre, on average.
The only question is why?
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"It doesn't make sense," says Dan McTeague, former MP and founder of the gas pricing website mentioned above. "These prices are not sustainable for the middle class or anybody else."
Typically, spring is a time of fluctuating gas prices, as refineries move from making a blend of gasoline tailored for cold weather driving, into a new blend targeted at summer driving. It's also a time when refineries make less petroleum products like heating oil, and readjust production towards gasoline to keep up with demand during the busy summer driving season.
"Price hikes? We call that spring," quips Phil Flynn, the senior market analyst at energy research firm Price Futures Group in Chicago.
There's usually an imbalance when that changeover happens, but not a big enough one to explain dime-a-litre jumps. Jason Parents, vice-president of energy research firm M.J. Ervin & Associates, notes that the retail price of gasoline jumped to about where it is now in April 2011 and May 2012, a sign that this sort of thing tends to happen at this time of year.
"Wholesale prices are working their way up and that's a normal seasonal thing, driven by refining," he said.
Refinery shutdowns while they make the switch can exacerbate the pain. On Tuesday, Suncor announced it would be shuttering its Montreal refinery for four weeks, taking as much as 137,000 barrels per day offline. That's a drop in the bucket compared to overall production, and shouldn't be enough to jostle prices.
"During this period Suncor has made the necessary arrangements to ensure sufficient finished products are available and expects all customer supply agreements will be met," the company said in a statement on its website.
Despite being a self-professed energy superpower, a lot of Canadian crude oil from Alberta gets shipped south to refineries on the U.S. Gulf Coast for processing, where it's then shipped to Canada and elsewhere to be used. Indeed, much of the gasoline used in Eastern Canada isn't Canadian at all, and likely comes from European sources.
Eastern Canada has lost three refineries in recent years, and the Toronto areadoesn't have one.
"Most refiners have taken the position of exiting the market because it's easier to pipeline product in from the U.S.," McTeague says. "We are more subject to global girations now."
Any increasein the price of crude oil would have an impact on gas prices forconsumers, but there's nothing there at the moment that could explain the sudden jump. As portfolio manager Laura Lau of the Brompton Group in Toronto put it: "The price of oil didn't go up five per cent overnight, that's for sure."
Higher oil prices
She's right.The two major international oil prices West Texas Intermediate from America, and Brent Crude from the North Sea have each ticked higher in recent weeks because of signs the global economy is heating up, and geopolitical tensions related to the crisis in Ukraine.WTIhas increased from around $92 a barrel in January to just over $102 today, while Brent has moved up by a bit less: from $104 a barrel to $109.
But neither of those increases is enough to explain the sudden jump in pump prices (in fact, Brent prices are actually down by 25 cents a barrel on Wednesday.) Nor does the oft repeated argument of refinery shutdowns hold any water with Lau. "We do typically have refinery maintenance this time of year but it's actually less than normal this year," she notes.
Add it all up and Canada is getting squeezed,McTeaguesays.
"We have the paradox of having significant amounts ofcrude and natural gas, yet we have among the highest natural gas and gasoline prices."
The North American oil market is extraordinarily interconnected across state and national borders, which means one could expect prices to move up broadly in unison. Here again, that's not happening.
According to the latest U.S. government data, Americans paid an average of $3.68 US a gallon to fill up last week. Convert that into Canadian dollars and litres, and that works out to roughly $1 a litre for gasoline. That figure was up about three cents per gallon compared to the previous week, but in Canadian terms that only works out to an increase of less than a cent per litre.
The lower loonie, however, isn't helping.As oil is priced in U.S. dollars, and the Canadian dollar has lost about 10 per cent of its value compared to the greenback in recent months. Even absent all other factors, a weaker loonieis going to leave Canadians paying more at the pump that they're used to.
"That, almost one to one, leads to a 10 per cent increase in gasoline prices," BMO economist Doug Porter told CBC News this week.
"It seems like a perfect storm and it's all happening at once," Flynn says. "But my sense is that very shortly these prices should top out and start to move lower."
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