Gas prices should be “well below” their current average of about a dollar a litre, according to at least one expert, yet the average pump price across Canada is sitting a few ticks above that as of last week, a time when oil was falling to new multi-year lows.
“With last week’s plunge in oil fresh in my mind as I headed into the weekend, I couldn’t help but notice how gasoline prices had ticked higher,” Benjamin Reitzes, an economist at BMO Capital Markets remarked in a note on Tuesday.
Prices at the pump are reflecting to a small degree the precipitous drop in oil – but not much. Benchmark oil prices in North America are down 36 per cent between last December and this week, yet Canadian pump prices down just six per cent.
With oil prices falling to levels last seen in late 2008, “gasoline around $1 per litre seems odd,” Reitzes added.
Disconnect
Moreover, a chart produced by Reitzes (below) shows a clear disconnect between current pump prices in Canada and the price of oil, two commodities that – again clearly illustrated by the chart – have held a close relationship historically.
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“Simply, consumers don’t appear to be reaping the full benefit of lower oil prices,” Reitzes said. “The chart suggests that gas prices should be well below $1.”
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MORE: Latest coverage — plunging oil
Experts Global News has spoken to have offered a number of reasons why gas remains relatively expensive amid a glut of cheap oil – high demand from North American motorists; a consumer shift to bigger vehicles; overstretched refineries; as well as the loonie’s sharp decline.
Street level
Another major contributor, according to experts, has been upward pressure on pump prices from big oil firms.
“Integrated” oil companies who own the whole value chain — from extraction to refinement into gas to retail distribution through owned or franchised stations – appear to be hitting consumers at the pump to help offset the revenue hit they’re taking from the sharp drop in the price of oil, according to some.
“That’s why prices at the pump don’t seem to reflect what’s happening with the price of crude,” the analyst said.
Comment from the Canadian Fuels Association, an industry group that spokespeople for the country’s biggest integrated oil companies directed media inquiries to, wasn’t immediately available.
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