Consumers are unlikely to see any price relief at the gas pumps for the foreseeable future, according to analysts who say uncertain international markets and an oil sands production outage in Alberta will keep Canadian prices high.
Syncrude Energy Inc. said on Monday that its oil sands complex won’t be back to full production until mid-September after a power outage shut down part of its operations late last month. Meanwhile, turbulence in Venezuela and Libya, as well as recent sanctions placed on Iran, could also have an effect on the global price of crude and further impact gas prices in the long term.
Michael Ervin, long-time market watcher at Kent Group Ltd., said Syncrude’s outage will affect mainly the Western Canada market. However, he noted that the effect will likely be that gas prices will stay at the same high level they’re at now, rather than rise even higher.
“The summertime is a period where gas prices are generally pretty stable. I don’t think that this summer will be any different other than what the impact of Syncrude’s downtime might be for Western Canada,” said Mr. Ervin, who added that it was generally hard to predict what the price impact of the Syncrude outage will be.
Data from Kent Group Ltd. pegged the average national gas price at $1.37 per litre as of July 3. The highest price so far in 2018 was on May 22 when prices crested at $1.40 a litre, coming just 1 cent short of the national record set in 2014.
While prices dropped shortly after their peak in 2014, Syncrude’s outage could contribute to a lasting high price at the pumps for the foreseeable future because of current market conditions both domestically and globally.
Dan McTeague, an analyst with GasBuddy, said the effect of Syncrude’s production cut was already noticeable in Calgary on Monday, where he said current prices broke the record of $1.389 per litre.
He added that prices in some parts of Canada, such as Ontario and Vancouver, could still go up even higher. Mr. McTeague expects other regions, such as the bulk of Western Canada, to only go slightly down from here.
Crude oil is currently trading at around US$74 a barrel, but all those international factors are causing some analysts to expect the price to increase to more than US$100 a barrel.
“When one considers Libya, sanctions coming on in Iran, and Venezuela being horrible economically, the Syncrude facility comes at a very bad time for those looking for relief at the pumps,” Mr. McTeague said.
He said a prolonged price increase could translate into estimated extra costs of between $350 to $500 annually for the average Canadian driver.
As far as the effect on Canada’s economy, high gas and oil prices could be a mixed bag, according to Avery Shenfeld, chief economist at CIBC Capital Markets.
Mr. Shenfeld said that while consumers will be drained of spending power that could be used on other goods and services, Canada’s role as a net exporter could generate some economic benefit.
“Should recent crude price gains be sustained, and provided Canada closes the gaps in pipeline capacity, we will see offsetting economic benefits from stronger hiring and capital spending in the oil patch,” Mr. Shenfeld said in an e-mail.
“Unfortunately, we feel the costs to consumers first, and the economic benefits from the energy sector come down the road.“