This summer, Canadians have the loonie to blame for the disconnect between gasoline prices and low oil prices.
The North American benchmark price for oil is about 50 per cent lower than it was this time last year, but the median price of gasoline across Canada is down only 11 per cent. Canadian consumers are missing out on the full benefit of low crude prices because the sinking Canadian dollar has been offsetting the price decline of oil and gasoline, commodities priced in U.S. dollars. As the loonie has dropped, the price for such commodities hasn't fallen as much in Canadian-dollar terms.
"The exchange rate relative to the United States creates much higher pump prices," said Michael Ervin, president of the Kent Group Ltd.'s consulting division, which specializes in the refining and marketing industry. The loonie is trading at about 77 cents (U.S), down 17 per cent from about 93 cents this time last year. Meanwhile, the North American benchmark price for crude closed at around $50 (U.S.) per barrel Monday, compared with $105 this time last year.
The loonie, however, is not entirely to blame. The price of crude around the globe has been under pressure for about 11 months, and many energy firms are struggling or unable to turn a profit. Oil producers that own refineries and gas stations are able to offset some of this pain by pinching drivers.
"To compensate for [low oil prices], they are hitting the consumer at the street level with gasoline prices," said Roger McKnight, the chief petroleum analyst at En-Pro International Inc.
The median price for gasoline in Canada on Monday afternoon was 118.9 cents per litre, compared to 133.7 cents per litre this time last year, according to GasBuddy.com. (Alberta increased its gasoline tax to 13 cents per litre from 9 cents per litre this spring).
Refineries should be the big winners this summer. Refining margins vary across North America depending on the quality of feedstock. Refineries processing heavy oil, for example, are generally less profitable than those with access to light crude. Across the board, however, Canadian refineries are posting healthy results.
"Rising wholesale gasoline prices outpaced rising crude prices this past quarter, leading to increased refining margins that settled at an eight year high of 27.7 cents per litre in June," the Kent Group said in a recent report. "Growth in refining margins was particularly pronounced in Eastern refineries, as the increase in their crude input costs was not as substantial as those in western Canada."
Companies that focus on refining rather than also producing oil and gas will be the largest beneficiaries. These include New Brunswick's Irving Oil, Quebec's Valero Energy Inc., and the Federated Co-operatives Ltd.'s refining operation in Saskatchewan, Mr. McKnight, the analyst at En-Pro, said.
Refiners' crack spread – the difference between the cost of crude they process versus the wholesale price of gasoline or diesel they sell – is up 126 per cent over last year, he said.
"The refining side of the business is doing extremely well," he said. "The culprit [driving gasoline prices] is really the refining margins or the amount of money the refining side of industry is making on the backs of the consumer."
The amount of gasoline in storage in the United States can also be a factor in determining what Canadians pay at the pumps. But supplies haven't changed much over the past year. The U.S. had 218 million barrels of gasoline in storage for the week ended July 10, according to the U.S. Energy Information Administration. There were 214.4 million barrels in storage in the same week last year.