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A motorist puts gas in his care in Montreal in this Apr. 4, 2012 file photo. (Graham Hughes/The Globe and Mail)
A motorist puts gas in his care in Montreal in this Apr. 4, 2012 file photo. (Graham Hughes/The Globe and Mail)

Mideast instability, hurricane behind gas-price hikes Add to ...

Montreal motorists had it too good, for too long, and now they are paying the price at the pump: 13 cents a litre, to be precise.

For weeks, gas stations in the city were competing to keep pump prices down, at times even below the floor price set by the province’s energy regulator. Then, overnight, prices in the city leapt to a record $1.54 a litre on Wednesday morning from $1.41.

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To Montreal drivers – and to a lesser extent, to motorists in other major Canadian cities – that may have looked like price gouging.

The real culprit is a combination of Mideast instability and the production pinch from the hurricane that hit the U.S. Gulf Coast late last month and shut down several refineries, according to the industry.

Despite a flagging North American economy and a flat demand for gasoline and diesel, pump prices have been on the rise since early July and spiked sharply higher across Canada on Wednesday, as the impact of hurricane-induced refinery closures on the U.S. Gulf Coast rippled through the North American market.

North American markets generally move in the same direction across the various regions as refiners and independent marketers truck gasoline and diesel around the continent in search of the best prices.

As crude prices climbed for early summer lows, pump prices in the U.S. and Canada rose in tandem, with some lag from American markets into Canada. In Montreal, the cost of gasoline rose more slowly than elsewhere as the price war raged, but lack of supply from the shuttered refineries caught up with the Canadian market in a big way Wednesday, especially across Quebec.

Montreal produced the most eye-popping increase, along with other Quebec cities that saw double-digit increases. According to gasbuddy.com, which tracks prices across the country, Toronto saw a 3.3-cents-a-litre increase; Ottawa, 3.5 cents; Calgary, 5.2 cents, and Vancouver, 2.3 cents. By late Wednesday, retailers across the Prairies were moving to match the national trend.

Garage owner Roger Vaillancourt is on the front lines of Montreal’s gas wars, operating a few pumps as an independent while doing repairs at his service station. On a daily basis, he sees customers who are frustrated by rising prices.

“Life is tough – everything is going up, food is going up, gas is going up, but salaries are staying the same,” Mr. Vaillancourt said in a telephone interview from his station in LaSalle district of the city.

But he said most independents usually lose money for each litre of gasoline they sell, while the major companies such as Esso, Shell and PetroCanada – which refine and market gasoline – can afford to keep retail profits low and make their money on the wholesale side of the business. (Although Quebec does set a price floor with the goal of protecting profits for small gas retailers.)

The price wars that consumers love to see are driving independents out of business and will ultimately result in less competition in the market, he said.

In each market, one company – usually a major refiner and marketer – tends to dominate and set prices through their company-operated stations, said Jason Toews, founder of gasbuddy.com. Competitors then follow the price leader, whose moves are plainly visible on major street corners.

Underpinning that day-to-day competition are the prices for crude oil and gasoline on commodity markets – on the rise since early July on growing hopes of global economic expansion and growing fears of a confrontation with Iran.

“It is the international crude market and the fears about Iran that are driving product markets,” said Carol Montreuil, vice-president of the Canadian Petroleum Products Institute, which represents the refining and marketing side of the oil business.

This year’s hurricane season, though minor compared to the devastating Katrina of 2008, packed enough of a wallop to force seven refineries in Louisiana to shut down operations before the Labour Day weekend. They are only now resuming normal operations.

There is some prospect of relief at the pumps: Analysts expect prices to retreat, particularly as gasoline consumption falls as the summer driving season ends.

Mr. Toews has his doubts about how quickly the oil industry will reverse this week’s price hike. “They’re pretty quick to pass the higher costs on to the consumer, and not so quick when it comes down.”

Follow on Twitter: @smccarthy55

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