Summer driving season is over, so will gas prices go down?
Tracy Johnson | CBC News | Posted: September 29, 2015 9:00 AM | Last Updated: September 29, 2015
Oil prices are expected to be weak through the fall, but not much relief is expected for drivers
Every May we are warned to brace ourselves for higher gasoline prices as the summer driving season begins. There were points this past summer when a litre of gasoline cost only a few cents less than in the summer of 2014, even though crude oil was half the price.
With our summer road-trips now in the rear-view mirror, what's next for pump prices?
Fall usually means some relief at the gasoline pumps. Demand is lower and refineries begin to blend less-expensive winter gasoline.
However, there's not much hope that this fall will follow the well-worn path of lower gasoline prices. As of Sept. 15, that winter gas has gone on sale, and the summer driving demand has fallen off, but prices at the pumps have dropped just a penny a litre on average.
So what's going on?
The gasoline market has been a tricky one to follow over the 16 months since oil prices began to drop. The price of a litre of gasoline bottomed out at 91 cents a litre the week of Jan. 13, 2015, when oil was $46 US a barrel and the Canadian dollar was still 83 cents US.
The companies are free to charge whatever they want, safe in the knowledge that no one is able to provide a spotlight on the pricing makeup. - Dan McTeague, GasBuddy.com
Since then, oil has traded up in the $60s, down in the $30s, and gasoline markets have sometimes paid close attention to the price of crude and at other times, seemed to completely ignore it.
The swing factor over the past several months has been the refining industry. Refineries have seen their take from a litre of gasoline increase from 12 cents the week that gasoline prices hit bottom in Canada to nearly 30 cents a litre in July, when Natural Resources Canada stopped releasing its weekly fuel report because of the election.
The money has been so good in refining that there's been a reluctance to do semi-annual maintenance, but that maintenance is about to start in earnest in October. Lower demand for crude oil feedstock will likely drag oil prices down further, but will not ease gasoline prices.
"The lower crude prices go, the more panicked oil companies get," said Roger McKnight, a senior petroleum analyst with En-Pro.
"They try to save their upstream (exploration) bottom line, by putting it to the downstream part of the company, which is refining and marketing."
Storage getting full
This is also the time of year when the amount of oil in storage starts to increase, as refineries slow down. Storage at the Gulf Coast was already at record highs last week, storage at Cushing, Okla., has been slowly draining, but is still at nearly 70 per cent capacity.
The investment bank Altacorp Capital said 669,000 barrels per day of refining capacity in the U.S. Midwest will be offline in October. That oil will likely end up in storage containers at Cushing, raising questions as to whether tanks will fill. Canada sends approximately 2.1 million barrels of crude oil a day to the U.S. Midwest.
"In times like we are now when storage is more full in North America that it historically has been, that makes a bad situation worse," said Rob Mark, an energy analyst with 3Macs.
"Could we have weak prices and ugly inventory levels in the third quarter? Absolutely, I'd be surprised if we didn't."
Refinery margins a black hole
The question is whether those weaker prices will flow through to the pump. With the information blackout at Natural Resources Canada, it's not clear where refining margins are right now.
But even if we did have that information, it's nearly impossible to trace the wholesale price of gasoline back to the price of the crude oil feedstock that goes into the refineries in the first place.
"The only information we have is from private-sector organizations that work for the oil industry itself," said Dan McTeague, a petroleum analyst at GasBuddy.com. McTeague is a former politician and longtime agitator for more transparency in the gasoline market.
He said that over the past weekend, Canadians paid 8.7 cents more per litre than the world price, once you strip away currency changes, taxes and tolls.
"The companies are free to charge whatever they want," said McTeague. "Safe in the knowledge that no one is able to provide a spotlight on the pricing makeup."
"We're told as Canadians that we should always be prepared to pay the world price for fuel. I don't have a problem with that, but you can see why the public is up in arms about this when you see these kinds of differentials."