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Winter Weather and Higher Fuel Costs


Back on November 10th, in this place, we suggested that this winter would be harsher than ones experienced in recent times. It turns out we were quite prescient and now in the midst of a deep freeze in much of Canada and the U.S., energy prices have in fact begun to reflect increased demand for heating products in which gasoline will surely follow.

In just two weeks, diesel spot prices in the Northeast have risen 20 cents a gallon or about 9 cents a liter with gasoline rising by about half that amount. Oil too has risen by about $4 a barrel which has surprised many given this is the time of year when gasoline and oil tend to fall. Last year for instance, over the same time period of the final days of 2016 to the first few weeks of January 2017, crude dropped about $2 a barrel while diesel barely moved, 45 cents a gallon or 14 cents a liter cheaper than this year.

The greatest concern associated with a colder and more active winter is the potential for breakdowns in the refining process and challenges to both oil production and pipeline shipments. Refineries are not impervious to freezing nor running short of crude feedstock if, for instance, the pipelines used to shut down or even navigable waters made impassable by ice or high winds that could affect oil movement by barge. But logistical challenges caused by colder weather aren’t the only consideration to the prospect of higher fuel costs.

While it is true that the use of natural gas in markets once served by diesel’s close cousin, furnace oil, has risen, it too cannot be a price offset. The widespread conversion and use of natural gas isn’t limited to residential or commercial heating. Its use has found a new and growing market in electrical generation and therefore storage inventories are seeing a noticeable draw given the cold, with a predictable uptick in natural gas prices at $3 U.S. per MMBtu on its way to $3.50 by the end of January.

Given the ever-increasing U.S. exports of diesel and gasoline products and the likely move by refiners to take advantage of the surge in diesel’s value, gasoline production may take an increasing back seat to diesel production, creating a slowdown in a gasoline output, despite brisk and ever-increasing demand for this time of year.

With GasBuddy’s U.S. and Canadian Outlook for 2018 warning of the most expensive year to drive since 2014, a harsher winter anticipated a couple of months ago provides more support to our belief that 2018 will see a lot of pain at the pumps.

Senior Petroleum Analyst, Canada

Dan is a skilled and noted bilingual (French and English) consumer advocate specializing in energy and current affairs. Known as Canada's “Gas Guru,” he founded to better help motorists anticipate the price of gasoline in advance across Canada. He has over three decades of experience in the petroleum industry, as a parliamentarian and an analyst.