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In recent weeks Canadians have faced ever-steeper costs at the pumps, with average national gas prices hitting close to $2 a litre and likely to push higher as the Victoria Day long weekend approaches. Yet the story of oil prices has been the opposite, setting up an infuriating disconnect for consumers. If oil prices are falling, why aren’t gas prices falling too?

Oil prices and gasoline prices disconnect

National average gas price

WTI crude oil price

Regular gasoline price, $/litre

US$/barrel

130

2.00

125

1.95

120

1.90

115

1.85

110

1.80

105

1.75

100

1.70

95

1.65

90

1.60

85

1.55

80

1.50

1

8

15

22

1

8

15

22

29

5

12

19

26

3

10

Feb. 2022

March

April

May

the globe and mail, Source: Natural Resources

Canada, U.S. eia

Oil prices and gasoline prices disconnect

National average gas price

WTI crude oil price

Regular gasoline price, $/litre

US$/barrel

130

2.00

125

1.95

120

1.90

115

1.85

110

1.80

105

1.75

100

1.70

95

1.65

90

1.60

85

1.55

80

1.50

1

8

15

22

1

8

15

22

29

5

12

19

26

3

10

Feb. 2022

March

April

May

the globe and mail, Source: Natural Resources

Canada, U.S. eia

Oil prices and gasoline prices disconnect

National average gas price

WTI crude oil price

Regular gasoline price, $/litre

US$/barrel

130

2.00

125

1.95

120

1.90

115

1.85

110

1.80

105

1.75

100

1.70

95

1.65

90

1.60

85

1.55

80

1.50

1

8

15

22

1

8

15

22

29

5

12

19

26

3

10

Feb. 2022

March

April

May

the globe and mail, Source: Natural Resources Canada, U.S. eia

Crude prices have been weighed down by mounting fears of a recession, COVID-19 lockdowns in China and the release of oil from strategic reserves by a number of countries. It’s not just gasoline prices that have become untethered from this trend. All types of refined petroleum products for transportation are up sharply, including diesel for trucking and jet fuel for the airline industry.

While refined fuels and crude usually move in synchronicity with one another, the widening gap, known as the “crack spread,” is being driven by several factors that are not about to resolve themselves any time soon.

For one thing, demand for gasoline, jet fuel and diesel has surged as economies reopen, people begin to travel again, and the trucking industry races to unclog supply chains. The increase in fuel use has outpaced the ability of refineries to keep up. An economic downturn would ease that demand, but so far there’s no evidence people are cutting back their fuel consumption.

The supply problems are being exacerbated by the fact that refinery capacity cratered over the course of the pandemic as plants shut down. Capacity in the U.S. is down 5.5 per cent from February, 2020, back to where it was in 2014, according to the U.S. Energy Information Administration.

Mix in Moscow’s invasion of Ukraine and the resulting disruption to Russia’s oil and diesel exports to Europe and the result is a surge in margins for refineries that buy crude and process it into fuel. That has sent shares of refinery companies soaring, with the S&P 500 refining and marketing index up 43 per cent this year, even as the broader market is down 18 per cent.

When it comes to the crude and gasoline disconnect, drivers’ pain is refiners’ gain.

Decoder is a weekly feature that unpacks an important economic chart.

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