It’s a trend noted well here at GasBuddy: Gasoline prices are moving upwards with the onset of warmer weather. This comes as little surprise since semi-annual refinery maintenance and the switchover to summer-blended gasoline is more expensive to produce but, could there be more?
Yesterday’s U.S. Energy Information Administration’s (EIA) Short-Term Energy Outlook or STEO suggested U.S motorists should expect to see an average 23 cents a gallon increase at the pumps this summer compared to the summer of 2016. Still, the EIA’s report doesn’t seem too concerned about the impending hike, noting that even with a projected average price of $2.46 a gallon, pump prices across America will be 70 cents a gallon less than the 5-year typical average for the season. But there are signs this may be too modest an estimate.
Assumptions about summer driving demand, global oil prices, unforeseen refinery breakdowns, pipeline disruptions or even unanticipated geopolitical considerations, can trigger dramatic regional- and continent-wide prices hikes that could disrupt rosy forecasts. The Canadian pump price picture is a case in point.
While the Canadian government doesn’t keep reliable data on weekly petroleum inventory, GasBuddy’s data points to a very expensive summer driving season ahead which has already begun. In major cities across Canada, gasoline prices have jumped an average of over 16 cents a liter (60 cents a gallon) compared to last year and there is a likely hood this will only widen to an average of 20 cents above the 2016 summer average. As Canada prices – all commodities in U.S. terms, its weakened currency, helped in no small part by depressed crude prices – accounts for some of the increase so too does increased taxes on fuel and its reliance on U.S. petroleum products, especially in Vancouver, the country’s third-largest metropolitan area.
The wild card in whether pump prices exceed the EIA’s modest price increase projections is demand for transportation fuels this summer. Noting that anticipated “motor gasoline consumption for summer 2017 is expected to average 9.5 million barrels per day (b/d), slightly more (0.3%) than last summer, as an expected 1.4% increase in summer highway travel more than offsets a 1.2% increase in fleet-wide fuel efficiency,” the Administration may be downplaying other factors, including a strengthening U.S jobs outlook and a resurging economic picture. Moreover, a decision by OPEC and “NOPEC” countries to extend oil output curbs could add more value to the global benchmark Brent oil, which the same STEO report notes is important given its admission that “Gasoline prices in the United States tend to reflect changes in the Brent global oil benchmark price.”
That gas prices are heading up is no secret revelation for North American drivers. That they will surpass expectations this summer is looking more likely when more factors are considered.