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The chances that the price of gasoline will hit the $1.40 to $1.50 a litre range this summer have increased now that crude oil has surged past $133 (U.S.) a barrel, analysts say.
The price at the pump averaged around $1.27 (Canadian) a litre across Canada this week, but the combination of a usual summer spike and high crude prices will likely cause a further jump of at least 10 to 15 cents a litre, said Cathy Hay, senior associate at MJ Ervin & Associates Inc., which tracks gas prices.
"What we haven't seen yet is that seasonal rise in gas prices related to supply and demand," she said.
In the early summer, prices usually jump along with demand, as drivers head out on vacation trips, Ms. Hay said. In most years, this adds about 10 to 15 cents to the price of a litre of gas. The price then tends to slip back as the summer progresses.
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Last year, the jump was as much as 25 cents a litre because gasoline inventories were low, but this spring "what will serve to moderate the spike is the fact that we are entering the peak gasoline demand season with inventories in quite good shape," she said.
Others think prices could go even higher. Jason Toews, co-founder of the gasbuddy.com website, said he expects prices to hit $1.50 to $1.60 a litre in Canada this summer, and possibly more if crude oil continues to rise.
He thinks prices will peak around Labour Day, then slip in the fall. "I don't think we'll see 99 cent per litre gas, but it certainly is possible to see $1.10 or $1.15 as a national average."
Rising gas prices were the main factor behind yesterday's jump in the annual inflation rate to 1.7 per cent. Without the rise in gasoline, the consumer price index would have risen only 1.3 per cent.
A few weeks ago, CIBC World Markets Inc. chief economist Jeff Rubin raised eyebrows by suggesting oil would hit $150 a barrel by 2010 and $200 by 2012, with Canadian gasoline reaching $2.25 a litre within four years. Less than a month later those forecasts don't seem nearly as bold.
"We're going to see $1.50 gasoline this summer," Mr. Rubin predicted yesterday.
When it costs as much as $140 or $150 to fill up a large vehicle, an owner's other purchasing patterns could change, he said.
At those prices, "you start to impact economic behaviour," he said. Consumers may cut back on eating out and make fewer discretionary purchases. "It'll be very interesting to note this summer whether people across North America drive less on the holidays."
Soaring gas prices are reflected in the types of new vehicles Canadians are buying this year. Sales of small, fuel-efficient cars were up 19 per cent last month and 17 per cent during the first four months of 2008, even though such vehicles are already the dominant segments in the Canadian market.
"It is entirely possible that sales of every segment except small, fuel-efficient vehicles (subcompact, compact, compact SUV, compact pickup) could be down in 2008," auto industry analyst Dennis DesRosiers, president of DesRosiers Automotive Consultants Inc.,said in a report yesterday.
Separately, Ford Motor Co. confirmed that it will shut a plant in Michigan that assembles full-sized sport utility vehicles for three weeks in June as high U.S. gas prices take a bite out of SUV sales. Another Ford plant in Kentucky will cut output in half in June by reducing production to one shift.
Asked yesterday whether the federal government would step in and try to reduce Canadian gas prices, Prime Minister Stephen Harper said the government's ability to affect gas prices "is so small that it's not worth doing," he said.
Broader tax cuts, such as the 2-per-cent reduction in the goods and services tax are better ways to provide savings to consumers, he said.
With files from Greg Keenan and Canadian Press
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