Canadian gasoline prices, already at record highs, could climb significantly higher if rising tensions over Ukraine result in a curtailing of oil output from Russia, one of the world’s top three producers of crude.
Adding to the squeeze on household budgets from soaring food and housing costs, Canada’s daily average retail price for gasoline has been hovering around an all-time high of $1.60 a litre. An all-out armed conflict in Ukraine could lead to some Canadians paying as much as $2 a litre in the worst-case scenario, analysts warn.
“What we’re seeing right now in oil markets is very much being driven primarily by what’s happening with Russia and Ukraine,” said Rory Johnston, a commodity economist and author of the Commodity Context newsletter.
Oil prices inched toward US$95 a barrel on Tuesday, the highest level in more than seven years, before falling on Wednesday after Western countries responded with ramped-up sanctions to the news that Russian troops had moved into two separatist regions in eastern Ukraine.
The worry is that an outright invasion of Ukraine could reduce the flow of oil from Russia, which currently accounts for around 10 per cent of global supply.
That risk is not imminent, analysts say. So far, the West seems keen to avoid financial sanctions that would hobble Russia’s short-term oil production capacity, Mr. Johnston said.
Still, the question is how hard Western powers would be willing to hit Russia’s energy sector if the conflict escalates.
“We are talking about a tremendous amount of potential loss,” Mr. Johnston said describing the size of Russia’s oil supply.
In another version of the worst-case scenario, Russia itself could cut its own crude exports to retaliate against Western financial sanctions, said Patrick De Haan, head of petroleum analysis at GasBuddy, which tracks real-time retail gasoline prices.
A significant reduction of Russia’s oil supply could send average gasoline prices in Vancouver to around $2 a litre, with similar increases across the country, according to Mr. De Haan. The average price of a litre of gasoline could soar to $1.85 in Montreal, $1.75 in Toronto and $1.65 in Calgary, he reckons.
A return of Iranian crude exports would soften the impact of disruptions from Russia, as Tehran and Western powers move closer to a nuclear deal. But Iranian production likely wouldn’t reach global markets until close to the end of the year, Mr. Johnston cautioned.
Even without geopolitical tensions boiling over, this summer is poised to be a pricey one for Canadian motorists.
Seasonal factors alone – the switch to costlier summer fuel, routine refinery maintenance and rising demand for gasoline in warmer months – typically push up prices by between 15 and 25 cents a litre, Mr. De Haan noted.
It doesn’t help that high global oil prices, which are quoted in U.S. dollars, are no longer synonymous with a strong Canadian dollar, Mr. Johnston noted. For years, Canadians could count on the loonie appreciating as crude prices rose, a relationship that worked as an automatic currency hedge for consumers.
But with capital spending in the energy sector down significantly from the heyday of the oil sands boom, the recent rally in crude prices has failed to trigger a parallel increase in the value of the Canadian dollar, resulting in a bigger sting for the country’s motorists.
Taxes are also part of the reason for record-high gasoline prices, Mr. Johnston said. While oil prices have crossed the US$100-a-barrel mark in the past, Canadians have never seen gasoline this expensive, he noted. That is, in part, because drivers are now paying more in taxes when they fill up.
Canada’s carbon pricing system, in place since 2019, means consumers are often paying a provincial or federal carbon tax in addition to a slew of other fuel charges. Ottawa’s carbon pricing benchmark started at $20 per tonne of CO2 equivalent in 2019, rising to $50 in 2022, with an eventual target of $170 by 2030.
The impact of higher fuel taxes went largely unnoticed for the past several years thanks to low global oil prices, but now that crude prices are once again on the rise, consumers are feeling the pinch, Mr. Johnston said.
Cash-strapped motorists can use a variety of small hacks to help reduce the cost of fuelling up, said Kristine D’Arbelles at the Canadian Automobile Association.
In general, safe driving is also fuel-efficient, according to Ms. D’Arbelles. Frequent jackrabbit starts and hard braking typically reduce travel times by just 4 per cent but increase fuel consumption by nearly 40 per cent, she noted. Driving at lower speeds and using cruise control on the highway also keeps fuel consumption in check.
Shortening your winter car-warm routine will also help keep cash in your pocket. Idling consumes one litre of gas every 20 minutes on average, according to the CAA.
Consolidating errands into fewer trips will also help you save on gas, especially in winter when it means you won’t have to warm up the engine multiple times a day, Ms. D’Arbelles noted.
Apps that help you spot the cheapest gas in your area – such as those offered by GasBuddy and Waze – can also help you save. However, make sure you’re not going on a lengthy and costly detour for the sake of saving a couple of cents a litre, Ms. D’Arbelles warned.
No single trick will make much of a difference to your fuel spending on its own, but applying several strategies consistently could save you hundreds of dollars a year, she said.
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