Canadians aren't getting the full benefit of plunging oil prices when they fill up at the pump, the Bank of Canada said Wednesday.
The central bank noted the relationship between crude prices – expressed in Canadian dollar terms – and pump prices over the past five years, and pointed to a growing gap that occurred in second half of 2015 as oil prices fell sharply.
"Although gasoline prices have declined, they have not fallen as much as the reduction in crude oil prices would suggest, based on historical experience," the Bank of Canada's monetary policy report said. Had pump prices more closely tracked crude, the inflation rate would have been 0.6 percentage points lower in November, it added.
It offered no explanation for the discrepancy. Still, lower energy costs have offset the impact of rising prices for food and other imported goods, the bank's governor, Stephen Poloz, said in a news conference.
"The effect of lower energy cost so far is bigger than the pass-through for other goods" of the inflationary impact of a devalued currency, he said.
The central bank's comment on the lagging reduction in pump prices echoed concerns many Canadians have raised about whether oil companies are boosting profits on the refining side of the business rather than passing through the full effect of lower crude costs.
"There is no doubt the falling Canadian dollar is having an impact," said Dan McTeague, senior analyst with GasBuddy.com, which tracks wholesale and retail petroleum markets across North America. "But there is definitely some profit taking [in Canada] – the margins at the refinery level have increased compared to those in the U.S."
The price for regular gasoline averaged 90.3 cents a litre this week, according to Kent Marketing Group Ltd., which surveys Canadian cities. That's down 11.4 cents in the past month, and 14.3 cents since mid-October.
Wholesale gasoline prices are roughly the same now as they were a year ago, when the international crude benchmark sat at $58 (U.S.), more than double what it is today.
Crude prices have fallen sharply since the beginning of 2016, and continued the rout Wednesday, with international Brent down 77 cents to $27.88 (U.S.) a barrel and West Texas intermediate for March delivery off 4 per cent to close at $28.35 (U.S.).
Industry officials point to the lower Canadian dollar as at least part of the reason for the decoupling between crude costs and pump prices. But they also point to strong demand for gasoline and diesel in the United States in particular, which has kept refineries humming and allowed them to increase their profit margins across North America.
Crude and gasoline trade separately on futures exchanges and respond to different market pressures, said Peter Boag, president of the Canadian Fuels Association, which represents the refining and marketing side of the oil business.
"Throughout the North American market, we've certainly seen strong demand for gasoline over the past year, in part because of lower gasoline prices. Strong demand means high refinery utilization and that typically pushes wholesale prices up and refinery margins up."
He added there have been several major refinery outages in the Midwest, and on the West Coast that have created supply pressures that, again, put upward pressure on wholesale prices.
In a recent report, Kent Marketing Group noted that the Canadian refiners have benefited from lower crude costs, but the drop was cushioned by a declining dollar.
Kent Marketing vice-president Jason Parent said because both crude and gasoline are traded across the border, the prices of both follow U.S. markets, though on an exchange adjusted basis. The widening differential in the Canadian-dollar cost of crude and gasoline – as noted by the Bank of Canada – was captured by refiners in their profit margins, Mr. Parent said.