Canada’s gas prices have fallen — but it may not last long, analysts warn

Click to play video: 'Kremlin says Russia would reject any global cap on the price of oil'
Kremlin says Russia would reject any global cap on the price of oil
WATCH: Kremlin says Russia would reject any global cap on the price of oil – Dec 5, 2022

Gas prices in Canada are currently on the decline, but uncertain geopolitical forces could see the relative relief at the pumps short-lived, according to experts.

Gas price tracking website is reporting that prices are down more than 25 cents as of Dec. 6 compared with November’s monthly average, currently sitting at an average of 147.3 cents per litre in Canada.

GasBuddy’s head of petroleum analysis, Patrick De Haan, said the price of oil has been on a decline recently due to a number of factors, including China locking down a portion of its economy due to COVID-19, thus decreasing demand, as well as an uptick in refining activity elsewhere as companies have completed their maintenance.

“On all fronts, we’ve seen improvement in supply and a decline in demand, leading to lower prices,” he said.

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De Haan predicts prices will stay low for the next couple of weeks as demand is relatively weak given the cooler weather and less movement that comes with it following the busy summer driving season.

Roger McKnight, the chief petroleum analyst at En-Pro International, agrees that prices will likely stay relatively low over the next couple of weeks and recommends that consumers fill up soon.

The analysts warn, though, that the low prices may not last that long into the new year due to geopolitical pressures, namely the gas price cap the European Union and the G7 are setting on Russia.

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A gas price cap of US$60 per barrel came into effect Monday on Russian oil exports in an attempt to limit its revenue that is driving the war in Ukraine. This move, however, may spark retaliation from Russian President Vladimir Putin to lower oil output, thus decreasing supply and boosting prices back up again, according to the analysts Global News spoke with.

They disagree, though, on how great the cap’s effect may be. De Haan, for one, told Global News that Russia’s exports were already priced at $60 per barrel, so the cap is “much ado about nothing.” Also, given that the countries that are enforcing the cap already haven’t been buying that much oil from Russia since the invasion of Ukraine, a further limit of exports may not have a great effect.

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“I just see the price cap as a lot of noise and very little substance,” he said.

Click to play video: 'Fuel prices falling at B.C. pumps due to lower demand'
Fuel prices falling at B.C. pumps due to lower demand

McKnight, on the other hand, said that if Putin limits oil production in retaliation, that will force imports to come from other sources, such as the United States, and will ultimately drive up the cost of crude oil as the other sources are pressed to meet demand. That, in turn, will have a domino effect and raise the price of gas and diesel, as well.

He said De Haan’s take that it will have little effect is only looking at the short term. Gas prices typically increase in mid-February, ahead of the summer driving season, so an increase in pressure for exports then would be unfortunate timing, he said. Combine that with the U.S.’s need to refill its crude oil reserves that it has been using to artificially fix the price of gas, and even more pressure will be placed on the U.S.’s domestic crude market, according to McKnight, in turn raising prices.

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“Fourteen of the last 15 years, prices of gasoline go up in mid-February,” he said. “This time, it’s not going to change, it’s going to be a little bit more vicious.

“The price (of gas) is not going to stay this low forever.”

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