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Canadians facing near-record gasoline prices

The national average price of gasoline hit almost $1.37 this week.

Fred Lum/The Globe and Mail

Like the return of the robin or opening day in baseball, a price spike at the gas pump has become a rite of spring.

Heading into the Easter weekend, Canadians faced near-record gasoline prices across the country, with actual records being set in markets like Montreal on Thursday where the price topped $1.50 a litre at some stations, according to a survey.

The national average hit $1.368 this week, the highest level since September, 2008, when a combination of record crude prices and hurricanes in the Gulf of Mexico drove the Canadian average to $1.42 a litre. That's up from $1.25 a litre at the beginning of the year and $1.23 in mid-April of 2013.

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The higher gasoline prices are not only nettling motorists, but fuelling an uptick in the consumer price index and acting as a kind of tax that will sap consumer spending power in other areas. Diesel prices are up nearly 10 cents a litre from last year, putting added pressure on a range of businesses, from trucking firms to grocery chains and airlines that are already adjusting to higher costs from a lower Canadian dollar.

Canadians should be used to a runup at the pumps in April, said Michael Ervin, vice-president with Kent Marketing Services Ltd., which tracks the market.

"Every year we see a seasonal increase in refiner margins as a result of the impending higher demand going into the summer," Mr. Ervin said. "It's well within historical norms."

In fact, the increase in average pump prices from early January to mid-April amounted to just 4 cents a litre last year, but was 16 cents in both 2011 and 2012, according to the Kent data.

In a continental market, prices at the New York harbour are key benchmarks for product prices right across North America. But supplies to that market have dwindled somewhat as refiners on the U.S. Gulf Coast take advantage of abundant crude supplies and cost advantages from lower natural gas prices to increase exports to Europe and South America. U.S. exports of petroleum products – mostly gasoline and diesel – are up 25 per cent from last year.

At the same time, crude costs have remained high, and a 10-per-cent decline in the loonie since last year has put added pressure on Canadian prices.

Despite booming production in the United States, North America's leading benchmark, West Texas Intermediate, has largely stayed within $5 of the $100 (U.S.) threshold and closed Thursday at $103.88 a barrel. Brent crude – which tends to set the benchmark for product prices – rose to $109.44 (U.S.), up from $105 at the beginning of the month.

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North American refineries went through a period of consolidation through the past decade and are now running at high utilization rates – often above 90 per cent of capacity – which allows them to keep profit margins fat and prices high. And while demand growth has been sluggish, it is starting to pick up with a strong North American economy and the end of a long, harsh winter.

While Canadian prices have climbed sharply, U.S. pump prices are up less dramatically. That's due in part to the stiffer competition among retailers in the United States, said Jason Toews, co-founder of The American market is increasingly dominated by regional brands and chains that are primarily food stores or fast-food restaurants and are able to survive on thinner profits from the sale of gasoline, using their pumps as loss leaders to bring in customers, he said.

Motorists aren't responding to the higher prices by cutting back dramatically on their driving so the industry can keep them elevated longer. It was less than a decade ago when consumers were first confronted with $1-a-litre pump prices, but they have since become used to paying $1.30, even $1.35 in many markets.

"What used to scare people and curb demand doesn't do so any more," Mr. Toews said. "It takes a much higher price to scare people."

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About the Author
Global Energy Reporter

Shawn McCarthy is an Ottawa-based, national business correspondent for The Globe and Mail, covering a global energy beat. He writes on various aspects of the international energy industry, from oil and gas production and refining, to the development of new technologies, to the business implications of climate-change regulations. More


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