Canadian consumers spent a record amount for gasoline in 2014, despite the slumping prices in the latter part of the year. But they can expect a major break in 2015, thanks to lower crude costs which at current levels would deliver an estimated $12-billion in annual savings to motorists.
Drivers paid an average across Canada of $1.28.1 for unleaded gasoline last year – the fourth consecutive annual record high, according to a survey released this week by Kent Group Ltd. The higher prices came as demand for fuel edged slightly higher, though final figures aren't yet available.
But the motorists will be the big winners in 2015 as Saudi Arabia continues to pursue a price war in order to maintain its share of global crude oil markets. In its final survey of 2014, Kent Marketing reported an average pump price of 98.1 cents a litre – 30 cents below the 2014 average and down 43 cents from the peak of $1.41.2 hit in late June.
The Saudis are refusing to cut production in order to prop up the market and instead are counting on slumping crude prices to force high-cost producers in the United States, Canada and elsewhere to slash investment and reduce supply.
As a result, North American crude prices have fallen by half from the summer high-water mark of $107 (U.S.) a barrel to close the year Wednesday at $53.27. The cratering of oil prices has blown a deep hole in provincial budgets in Alberta, Saskatchewan and Newfoundland and Labrador – as well as in Ottawa – even as the Calgary-based industry faces losses and layoffs. But it is a boon to consumers, especially in non-producing provinces where the economic fallout is less direct.
After watching pump prices climb steadily since the recessionary low of 71.7 cents (Canadian) a litre hit in the last week of December, 2008, consumers can now expect a sustained period of lower fuel costs.
"Bad news for producers is good news for consumers who will now see the cost of living fall to 10-year lows," said Dan McTeague, an analyst with Gasbuddy.com. He said the benefits go well beyond the price at the pump.
"Lower fuel costs lead to reduced input costs for commercial transportation, manufacturing and agriculture. Canadians could well see an increase in their purchasing power as lower costs are passed on ultimately in the form of lower prices for goods and services."
For a Ford Escape, one of Canada's most popular SUVs, the reduction in the pump price has slashed the fuel bill by $17.60 a fill-up compared with the 2014 average, while drivers of a Honda Civic are saving $15 when filling an empty tank.
Canadians consumed 42 billion litres of gasoline in 2013, according to Statistics Canada – a figure that will rise slightly in 2014. If the current pump price holds, drivers would save $12-billion over the course of 2015. (By way of comparison, Ottawa collected $31-billion from its goods and services tax last year.) And that doesn't include $3-billion in savings that users of diesel fuel would see at current prices.
As the largest consumer of gasoline and a non-producer of oil, Ontario is the big winner among the provinces. In 2013, Ontarians consumed 16.4 billion litres of gasoline. At current prices, that would yield nearly $5-billion in annual fuel savings for drivers, plus additional savings for people who heat their homes with fuel oil or drive a diesel-powered vehicle.
Of course, crude prices won't stay at depressed levels forever.
The U.S. Energy Information Administration (EIA) expects crude prices to average $65 (U.S.) a barrel in 2015 – up from the current $53.27, but still significantly below the 2014 average of $93.82. Still, few analysts expect to see oil prices to rebound significantly before the second half of the year, when the industry's spending cuts begin to impact production.
Pump prices tend to rise in the spring when North Americans refiners prepare for the summer driving season. Canadian pump prices reflect movements in the U.S. and the EIA agency forecasts American pump prices will average $2.60 a gallon, up from the current $2.24 but still a bargain compared with the 2014 average of $3.37.