The price of a barrel of oil has fallen about 20 percent in the past month, a situation that would normally result in a comparable drop in the price consumers see when they fill up their cars with gas. But imbalances between supply and demand have caused pump prices to move in the opposite direction, and the effect on Canadian drivers has been dramatic.
On a day when the benchmark price of a barrel of oil lost about a dollar, gasoline prices soared in some parts of the country on Thursday, with Thunder Bay seeing average prices rise as much as 20 cents the liter, and Edmonton and Calgary moved. a similar amount on Friday, although oil prices lost another 50 cents.
However, the pain is felt most acutely in British Columbia, where the average price of a liter of gasoline is $2.39. This is the highest average price on record for any jurisdiction in North America.
While many things go into the price drivers pay at the pumps, the main culprit in BC right now is the shutdown of one of the region’s major refineries, reducing gas supplies. But demand for drivers has remained steady, driving up the price of what’s available.
Refinery closures
The Phillips 66 refinery in Ferndale, Wash., shut down for maintenance earlier this month, with about 65,000 barrels a day of gasoline offline.
“BC and Vancouver import every last barrel of gas and diesel [that] region of the United States,” said Vijay Muralidharan, energy analyst at R Cube Economic Consulting Inc. “When refining shuts down, that amount of gasoline supply shuts down.”
Gasoline markets in North America are broadly divided into five zones, known as the Petroleum Administration for Defense Districts (PADD), according to the US Energy Information Administration. As supply is tight but demand is strong in the PADD-5 district that includes British Columbia, fuel from the other four regions is moving to meet that need and pushing up prices everywhere.
“You have to compete for these limited barrels,” Muralidharan said. “So whoever pays the highest prices wins the product.”
The Washington state refinery isn’t the only one offline right now. A refinery in Toledo, Ohio, has shut down due to a fire and isn’t expected to return to full capacity until 2023, so these staggered shutdowns are also affecting U.S. prices.
“I don’t know if I’ve ever seen a wider range of price behavior coast to coast in my career,” said GasBuddy.com analyst Patrick De Haan.
“A large number of unexpected refinery outages, including fires and routine maintenance, appear to have occurred in a short period of time, causing wholesale gas prices to rise in areas of the West Coast, the Great Lakes and Plains states, and some of those areas could see prices rise 25 to 75 cents a gallon or more until the issues are resolved,” he said this week.
This comes as the price of a barrel of the benchmark US crude known as West Texas Intermediate has fallen from $96 a barrel at the end of August to as low as $76 at one point this week on fears of a recession The paradox of cheap oil coupled with expensive gasoline is sweeping across the United States and spilling over north of the border.
“The market is so tight”
Prices in oil-rich Alberta are always lower than the rest of the country, but pump prices in the province’s two biggest cities went from less than $1.50 a liter on Thursday to more of $1.60 on Friday.
Prices in Alberta are up about 10 per cent in the past week compared to 20 per cent in Thunder Bay, BC. BC Thunder Bay’s jump is directly affected because “most of the gasoline comes to Thunder Bay through the pipeline directly from Edmonton,” said Paul Pasco with energy consultancy Kalibrate. “In terms of the magnitude of the price change that’s happened in Thunder Bay, it’s exactly where it should have been.”
He also points to another reason for gas price hikes: the supply of ethanol. Many US states and provinces require retail gasoline to be blended with between five and 15 percent ethanol, the supply of which fell seven percent last week. “If this were to hold, the components of the mix are also increasing,” he said.
He said he doesn’t expect drivers to see any relief until after the long Thanksgiving holiday weekend, but even then the market is vulnerable to any modest decline on the supply side. “It’s just that the market is so tight on refining capacity,” he said.
Joel Scott of Vancouver says he’s looking to buy an electric vehicle because of the environmental and financial toll of using so much gas. (CBC)
On the streets of Vancouver Thursday, Daniel Mihaichuk said it’s hard to ignore the price drivers are paying at the pump. “Compared to the rest of the world, it seems to be considerably higher here,” he told CBC News.
Driver Joel Scott said he needs a pickup truck for work, but is looking to buy an electric version as soon as he can afford it. “We need to drive less,” he said, noting that the reasons are not just economic. Last year’s flooding during the Atmospheric River opened his eyes, he said.
“Climate change, you can totally tell we’re being affected by that,” he said.
Hurricanes Fiona and Ian appear to have passed through most of the oil infrastructure, but the delivery and supply of gasoline still feels the uncertainty, said Kristine D’Arbelles, senior director of public affairs at the CAA.
“Storms can have an effect on gas prices,” he said. “Because where the gas comes from is slightly different across the country, that could mean one province feels it a little more than another.”
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The petrol tax relief has expired
When prices spiked earlier this year, many provinces moved to give consumers some relief at the pump by temporarily lowering gasoline taxes. These cuts are expected to end soon, which will be another factor pushing up prices.
Alberta’s fuel tax is normally 13 cents per litre, but the province reduced that figure to zero during the crisis earlier this year. Starting tomorrow, however, the province will reintroduce a tax of 4.5 cents per litre.
In Ontario, the gasoline tax was cut to nine cents per liter from 14.7 cents on July 1, but is scheduled to end on December 31.
Victor Vallance, senior vice president of natural resources and pipelines at DBRS Morningstar, said currency issues are also a factor. The price of oil is priced in US dollars, and like most other currencies, the wolf has been losing ground against the US dollar for weeks.
“People are being squeezed everywhere,” he said.