Vancouver expected to headline long Canadian summer of high gasoline prices

Gasoline prices are expected to remain just below record highs all across Canada this summer, except in Vancouver where a perfect storm of factors will likely ensure motorists continue to pay new all-time records at the pumps.

Fuel market analysts say average retail prices in Canada are within a penny or two of their year-ago levels, which were some of the highest on record for many markets.

"Vancouver certainly is [at historic highs]but the other major markets we're looking at, such as Calgary, Toronto, Halifax, Montreal, they're not exceeding historical levels, they're basically at historic levels," said Michael Ervin, senior vice-president at the Kent Group Ltd.

The average price of gasoline in major Canadian markets last week was about $1.34 per litre, but it varied from around $1.23 in Calgary and Winnipeg to the high of $1.70 or more in Vancouver.

Supply interruptions

Gasoline prices rise every spring due to factors including the higher cost of making summer gasoline which requires an extra four or five cents per litre for additives to prevent evaporation and supply interruptions as refineries shut down for routine maintenance, the analysts said.

Prices have also risen in part due to the federal carbon tax on fuel that was applied to Saskatchewan, Ontario, New Brunswick and Manitoba on April 1.

But demand climbs in summer as people take vacations that involve driving, especially where they drive large vehicles.

Analyst Dan McTeague of GasBuddy.com said demand will support fuel prices this year, butpredictions could change if oil prices begin moving lower because of a trade war.

"Demand is really strong in the United States, it's OK in Canada, but the signals are really going to depend on geopolitics and on whether or not the world finds itself in a trade war. All bets are off in that circumstance," he said.

Pressure on B.C. premier

The rising prices in the Vancouver area have put pressure on B.C. Premier John Horgan, who last week asked the B.C. Utilities Commission to consider investigating why prices have risen by more there than in the rest of the country.

The analysts say there's no mystery British Columbians are paying more because the province's two small refineries don't produce enough to supply the market,so they rely on imports from Alberta on the Trans Mountain pipeline, which is full, and U.S. refineries in Washington, which have been hit with longer-than-expected spring outages.

McTeague said the cost of an average litre of gasoline in Vancouver breaks down to about 52 cents per litre for the oil, 33 cents for the U.S. refinery, four cents in wholesaler markup, about 12 cents in retailer margins, 52.5 cents in federal, provincial and municipal taxes and 10 to 15 cents per litre due to B.C.'s low carbon fuel standard regulations.

The last item is a hidden cost that's difficult to measure, he said. It establishes a minimum renewable content and carbon intensity level in fuel, while requiring credit trading if those targets aren't reached.

Higher prices in U.S.

Parkland Fuel Corp., which owns the 55,000-barrel-per-day capacity Burnaby, B.C., refinery, says it operated at a utilization rate of about 92 per cent in the first quarter of 2019 and that it started processing bio-fuels such as canola and tallow to help bump up its production of lower carbon intensity fuels.

Prices in Canada will be supported over the summer by higher prices in the United States, where domestic demand is expected to be robust and where fuel exports are on the rise, Ervin said.

Last week, the U.S. Energy Information Administration raised its forecast for nationwide average gasoline prices through September to $2.92 US a gallon, about seven cents more than last summer, partly due to higher margins for refining gasoline.