What Nova Scotians should know about fluctuating fuel prices

Nova Scotians who drive will be painfully familiar with fluctuating prices at the pumps which hit record highs in recent weeks before dipping again.

The price spike has been partially blamed on the worsening conflict in Ukraine.

But according to Roger McKnight, chief petroleum analyst at En-Pro International, an energy consulting firm in Ontario, the crude supply was tight even before the crisis in Ukraine.

Preston Mulligan, guest host of CBC's Information Morning Halifax, spoke to McKnight about what he predicts for energy prices in Nova Scotia.

This discussion has been edited for length and clarity.

Phil DeMont, our business guy, was telling us about the price of crude dipping down to $98 a barrel from about $120 earlier this month. What's driving prices right now? 

What's driving price right now is, more or less, the situation in Ukraine. It's running on rumour and innuendo right now and the latest rumours are that things are starting to settle down a bit. There have been some meetings.

Also, the Iranian situation looks like it may come to a happy ending and that would add another 700,000 barrels of crude into the market.

Demand in China is also falling off because of the ongoing pandemic situation there.

Wall Street is saying oil demand is starting to drop off and supply looks like it may increase. So the teeter-totter is starting to level in favour of the consumer.

We saw prices dip a week ago. Can we say prices are gradually coming down or is it just a blip?

I think you're in for a little bit of a surprise, a pleasant surprise. I'm forecasting you will see a 10-cent drop at the pump within the next two days. As Nova Scotia prices are regulated, it looks like about 10 cents a litre from today's price.  

There was some talk about getting the Saudis to release some of their reserves. What's happening there?

There are only two sources of extra production capacity — Saudi Arabia and the United Arab Emirates. They were approached by the Biden administration [in the U.S.] but said they were not interested in adding more product to the market because they like where prices are right now.

I think President Biden is going to have to let loose the shale oil industry because they can turn things around on a dime as far as production is concerned. 

What would drive prices down permanently more in the long run, shale gas or renewables?

That isn't going to happen overnight whatsoever. The only thing you can really do is live with the devil you know right now, which is the fossil fuel industry, and get the shale oil industry back up and running.

Investors are shying away from the fossil fuel side of the business because of environmental concerns and the shareholders really don't like to see it. So it's a bit of a pickle, really.

Let's say there was no Russian invasion in Ukraine. What were you seeing driving gas and oil prices? 

If the Russia and Ukraine situation weren't in existence right now, we'd still be in a pickle because we have a very tight supply side for crude. 

Crude inventories are 13 per cent below the five-year average. Yet we have demand going through the roof. Jet fuel demand is up 35 per cent. So you've got a shortage of supply and an overabundance of demand, and that isn't working out too good.

Also, now is the time [of] the year when refineries go into sort of a hibernation, getting ready for the driving season and maintenance programs. So we've got refining runs down around 88 per cent, which isn't great as some of the refineries can't keep up with the demand because they're in hibernation.

Is there anything governments can do to alleviate the pressure these prices are putting on people?

The only thing that the federal or provincial governments have any control over is the tax structure.

They can't control the price of crude. They can control the demand side by prices going up. So [they can] get the prices down by adjusting the tax structure. I think Alberta's going to do that. Ontario has an election coming up by June 2.

The higher these prices go, the tighter the collar gets around the necks of the politicians.

If things go well and the situation in Ukraine is resolved, where will that leave us?

It will still leave you in a supply-demand imbalance that will be quite severe.

Prices normally start to increase about mid-February and they peak mid-April in normal times. These aren't normal times. I can see prices continuing to stay at a record-high prices for the time of year [until] when we get into around June.

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