As the summer approaches, Canadians may want to hit the road to enjoy the nice weather. But will gas prices agree with plans for a road trip?
The analytics website GasBuddy is warning that while prices for gasoline have dropped over the last week, recent decisions to cut the supply of oil could place upward pressure on prices.
“(The Organization of the Petroleum Exporting Countries) OPEC+ agreed Sunday to additional production cuts, while Saudi Arabia is going above and beyond and cutting July production,” Patrick De Haan, head of petroleum analysis at GasBuddy, said in a blog post.
“As a result, oil prices are likely to see upward pressure as global supplies, which have remained tight, promise to become even tighter.”
Gas prices have lowered since record highs last year when inflation was blazing hot and there was pent-up demand after two years of COVID-19 restrictions.
Demand has been lower this year, though, causing lower supply to not increase prices.
The average price in Canada is currently around $1.60 a litre, down about 50 cents from in 2022. However, prices are still above the average seen before inflation hit, which De Haan told Global News didn’t peak over $1.45 a litre.
“It is not a full return to normal,” he said. “Part of the reason why prices have not really rallied much this year is simply because of lack of a return in normal consumption.”
As for what Canadians can expect over the summer, De Haan predicts prices between $1.45 to $1.80 a litre — but warns that avoiding a price spike is a delicate balance.
Saudi Arabia announced it will cut its output of oil by 1 million barrels per day beginning in July as the international benchmark Brent crude dipped to $75 per barrel in recent days. The country hopes to boost the price to $80.90 per barrel, which its economy relies on.
Meanwhile, OPEC+ producers agreed recently to extend earlier production cuts through next year.
While demand has been lower than supply, De Haan said that too much of a stimulus to the economy could send prices skyrocketing due to the lower supply.
Luckily, the risk of that happening this year is fairly low, he said, as interest rates are expected to remain steady or go up. The effects of lower supply could hit next year if monetary policies ease, he said.
“OPEC is playing a dangerous game,” De Haan said. “It wants to drive up prices in the short term, but in the long term, it risks that policy spiraling out of control.”
De Haan also warns that the hurricane season, which usually hits in July and August, could also be a factor in gas prices and creates a risk of costs spiking.
In the meantime, some Canadians are planning for a road trip this summer to take advantage of the lower gas prices this year compared to last, though they are bracing for higher prices elsewhere due to inflation.
Ross Cruz Bidar told Global News he is planning a trip to Tobermory in Ontario this summer but may cut back on other expenses like coffee to save some money.
“(Gas prices) are going to be a factor this summer,” he said.
— with files from the Associated Press and Global News’ Anne Gaviola.