With oil’s rally finally showing signs of losing steam, gas prices across much of North America appear to be declining, especially in the U.S.
An early projection of pump prices from now until Christmas and the New Year suggests prices will fall modestly, although total values will still be much higher than last year at this time. Beyond the holidays and into early 2018 when the traditional lull in demand and prices occurs shows that Canada may break from this trend and be on track to actually see the cost of fuel rise.
As our GasBuddy Fuel Insights data shows, gas prices are currently 28 cents a gallon higher than last year. Much of this can be traced to higher demand, crude oil at an average $8-$10 a barrel higher and the after effects of refinery disruptions caused by an active Hurricane season. By contrast, Canadian pump prices are a whopping 46 cents a gallon higher, even though the Loonie, the nickname for the Canadian dollar, is trading stronger against the U.S. dollar. All Canadian prices are based on world market prices for commodities, including diesel and gasoline, in U.S. terms.
Upon closer examination, the higher prices seen in Canada are linked to a number of factors: higher taxes and the reality that under new carbon tax regimes, the divergence in pricing between the U.S. and Canada will continue to widen. Higher refinery margins due to growing demand in certain regions such as Ontario and Vancouver have seen wholesale (rack) prices climb an average of 3 cents a liter, year over year, or about 12 cents a gallon, compared to relevant American border city racks. Retail margins in most large cities have increased as well by nearly 2 cents or about 7 cents a gallon versus the U.S.
As no major changes are expected in Canada’s retail or refinery landscape over the next year, the looming hike and introduction of a federal carbon tax of 3 cents a liter on January 1st, sets in motion the prospect for higher fuel costs for years to come. Not only will refineries continue to charge substantially more for processing oil in Canada compared to U.S. refiners, but the average annual carbon tax hike of about 3 cents a liter up to January 1, 2022, will almost certainly guarantee a widening gulf in pump prices between the two nations.
For Canadians, the cost of living is about to get a lot more expensive, north of the border.