After seeing gas prices move higher towards the middle of April, markets and pump prices seem to be reversing course before Memorial Day in the U.S. and the Victoria Day long weekend in Canada. As observed here at GasBuddy in Monday’s blog, average U.S prices at the pumps actually fell 6 cents a gallon while Canadian average prices have dropped 5 cents a liter. Both countries are now paying about the same price as they did a month ago.
This unusual reversal is cause for drivers to celebrate but a troubling portent for refiners and the industry’s downstream sector. Pinpointing the cause for lower prices isn’t an exact science but a few important points provide context for what could be a cheaper summer to drive compared to last year.
The recent slight declines in U.S. crude oil inventories aren’t enough to cut into the massive oil storage levels that have increased dramatically since last summer. The declines are directly related to the refiners emerging from several weeks of semi-annual maintenance, ramping up output of gasoline products to near record levels. Indeed, in the third week of April, just days after gasoline prices hit their highest values of the year at $ 1.75 a gallon at the notional New York Harbor benchmark, U.S. refiners processed nearly 17.3 million barrels of crude a day: a record for any time of year.
Behind the scenes, oil producers are quite aware that even though inventories for crude fell from 535 million barrels to 528 m/b in the past two weeks as refiners emerged from maintenance, the rising production of domestic oil, which hit 9.3 m/b, all but guarantees oil’s current values will continue to drop, even below yesterday’s $45.37 for a barrel of West Texas Intermediate. This casts a pall over petroleum products which too are being churned out at record levels, without any sign of an uptick in demand.
Should demand for gasoline and other refined products not rebound in the next few weeks in the lead up to the holidays that mark the official start of the summer driving season, pump prices and profits are likely to take a nosedive. Look then to the very real potential for gas prices fall to back below last summer’s $2.20 a gallon average price and below $1 a litre in Canada.