The price of Brent crude, the international benchmark for the price of oil, fell slightly after the U.S. and Iran received ceasefire proposals, but at US$108.60 a barrel it still remains around 50 per cent higher than what it was before the war began.
Economists are warning, however, that the price of oil breaching US$150 would have adverse impacts on consumers in the U.S. and Canada.
Gas prices in the U.S. soared above US$4 per gallon, while in Canada they were $1.79 per litre nationally on Monday morning according to CAA.
A recent BMO report has warned that oil prices going past US$150 per barrel would ripple out throughout the broader economy.
“If oil prices jumped to $150, sending gas prices above $6, the cumulative 2% reduction in consumer spending would risk a mild economic downturn,” BMO senior economist Sal Guatieri said in a report published last week.
Get breaking National news
The oil shock from the Iran war is already the “largest monthly increase in fuel prices on record,” stretching back four decades, Guatieri said.
The Bank of Canada and the U.S. Federal Reserve wouldn’t be able to do much to step in and avoid a full blown economic crisis, he added.
“Unlike earlier economic slumps often triggered by higher interest rates, central banks might not be able to respond in time to avoid a downturn, as rising energy costs would lift inflation and possibly longer-run inflation expectations,” he said.
This has the potential to be “much worse” than the most recent global oil shock caused by the Russia-Ukraine war in 2022, which caused oil prices to go past US$120 a barrel and gas prices in the U.S. to soar past US$5 a gallon, the report said.
While “consumers are less sensitive to rising fuel costs today than in the early 1990s,” higher gas prices would mean they would start to pull back spending in other areas of their lives, it added.
The impact on Canada’s economy is likely to be worse than that on the U.S. economy, the report found.
“Canadians will likely feel the pain at the pumps more than Americans. They are on a less sound financial footing and, consequently, spend less,” he said.
In it’s weekly outlook to clients, CIBC Capital Markets said there is going to be a “a pull back in discretionary spending” due to the oil shock.
It added, however, that the sustained burden at the pumps might raise domestic pressure on U.S. President Donald Trump to negotiate a quick end to the war.
“The pressure on the President to end the war quickly isn’t coming from the very small percentage of families that have a son or daughter at risk on the front lines. It’s coming from the large percentage of Americas who still drive a gas-fueled vehicle,” CIBC economist Avery Shenfeld said in a note.
A recent report by a global asset management firm said that three more months of war in Iran would cause Brent crude oil prices to skyrocket, soaring past US$200 a barrel.
The report outlines two scenarios, the first with the war ending at the end of March and the second with the war continuing until the end of June.
In the first scenario, the group’s analysts expect oil prices to fall quickly, “albeit to levels still above those seen pre conflict.”
A prolonged conflict, however, could send oil prices skyrocketing past US$200 a barrel, the report said, adding that it would translate to a price of $US7 per gallon at the pumps.
The U.S. is the largest oil producer in the world. Canada the fourth.
North America could be an absolute powerhouse if our leadership cut the B.S. fictional environment “stewardship” the yap about but do nothing concrete in effect.
We have our own oil and we still have refineries so why do we not just produce our own.
Correction: It’s about $2.65/L in CAD. PLEASE put this information in your article because clearly the general masses (me) will make the mistake.
Instead of summarizing with the cost per US dollar per gallon how about we get a CAD cost per liter?
For anyone reading this it’s almost $10 per. Saved you from having to look it up yourself!
This ought to fuel sales of EVs.(pun intended) And here I thought Trumpty hated EVs. Well, his war has done more to help sales than the gov’t incentives that he cancelled. Looks good on him.