Oil prices have fallen — so why is the price of gasoline skyrocketing across Canada?

The price of a barrel of oil has fallen by about 20 per cent in the past month, a situation that would normally result in a comparable decline in the price consumers see when they fill up their cars with gasoline. But it hasn't.

Average price in B.C. right now at $2.39 a litre, the highest on record

The price of a barrel of oil has fallen by about 20 per cent in the past month, a situation that would normally result in a comparable decline in the price consumers see when they fill up their cars with gasoline. But imbalances between supply and demand have caused pump prices to move in the opposite direction, and the effect on Canadian drivers has been dramatic.

On a day when the benchmark price for a barrel of oil lost about a dollar, gasoline prices skyrocketed in parts of the country on Thursday, with Thunder Bay seeing average prices jump by as much as 20 cents a litre, and Edmonton and Calgary moved by a similar amount on Friday — even as the price of oil lost another 50 cents.

The pain is currently most acutely felt in British Columbia however, where the average price for a litre of gasoline is $2.39. That's the highest average price on record for any jurisdiction in North America.

While a lot goes into the price that drivers pay at the pumps, the main culprit in B.C. right now is a shutdown of one of the region's main refineries, reducing the supply of gasoline. But demand for drivers has held steady, which has jacked up the price of what's available.

Refinery shutdowns

The Phillips 66 refinery in Ferndale, Wash., was shut down for maintenance earlier this month, taking about 65,000 barrels a day worth of gasoline offline.

"B.C and Vancouver import every last barrel of gasoline and diesel from [that] region of the United States," said Vijay Muralidharan, an energy analyst with R Cube Economic Consulting Inc. "When the refining goes off, that amount of supply of gasoline gets shut."

Gasoline markets in North America are broadly divided into five zones, known as the Petroleum Administration for Defense Districts (PADD), according to the U.S. Energy Information Administration. Because supply is limited but demand is strong in the PADD-5 district that includes British Columbia, fuel from the four other regions is moving around to meet that need — and bringing up prices everywhere.

"You have to compete for those limited barrels," Muralidharan said. "So who pays the higher prices wins the product."

The refinery in Washington state isn't the only one offline right now. A refinery in Toledo, Ohio, has been shut down due to a fire, and it isn't expected to be back to full capacity until 2023, so those spread-out shutdowns are impacting prices across the United States, too.

"I don't know that I've ever seen a wider gamut of price behaviours coast to coast in my career," said Patrick De Haan, an analyst with GasBuddy.com.

"A slew of unexpected refinery disruptions, including fires and routine maintenance, have seemingly all happened in a short span of time, causing wholesale gas prices to spike in areas of the West Coast, Great Lakes and Plains states — and some of those areas could see prices spike another 25-75 cents per gallon or more until issues are worked out," he said this week.

That comes at a time when the price for a barrel of the North American crude oil benchmark known as West Texas Intermediate has gone from $96 a barrel at the end of August, to as low as $76 at one point this week on fears of a global recession. The paradox of cheap oil coupled with expensive gasoline is cascading across the United States and spilling north of the border.

'The market is so tight'

Prices in oil-rich Alberta are always lower than they are in the rest of the country, but pump prices in the province's two biggest cities jumped from below $1.50 a litre on Thursday to more than $1.60 on Friday.

Prices in Alberta are up by about 10 per cent in the past week versus about 20 per cent in B.C. Thunder Bay's jump is directly impacted by that because "most of the gasoline gets to Thunder Bay through pipeline from Edmonton directly," said Paul Pasco with energy consultancy Kalibrate. "In terms of the magnitude of price shift that's happened in Thunder Bay, it's exactly where it should have been."

He also singles out another reason for gas price spikes: the supply of ethanol. Many U.S. states and provinces require that retail gasoline be mixed with anywhere between five and 15 per cent ethanol, the supply of which declined by seven per cent last week. "If that were to keep up the blending components are going up, as well," he said.

He said he doesn't expect drivers to see any relief until after the Thanksgiving holiday long weekend, but even then the market is vulnerable to any modest decrease on the supply side. "It's just, the market is so tight on refining capacity," he said.

On the streets of Vancouver on Thursday, Daniel Mihaichuk said it's hard to ignore the price that drivers pay at the pump. "Compared to the rest of the world, seems like it's considerably higher here," he told CBC News.

Driver Joel Scott said he needs a pickup truck for work, but he's looking to buy an electric version as soon as he can afford it. "We need to drive less," he said, noting that the reasons aren't just financial. Flooding last year during the atmospheric river was eye-opening for him, he said.

"Climate change, you can totally tell we're being affected by that," he said.

Hurricanes Fiona and Ian seem to have bypassed most oil infrastructure, but delivery and supply of gasoline is still feeling the uncertainty, said Kristine D'Arbelles, CAA's senior director of public affairs.

"Storms can have an effect on gas prices," she said. "Because where gas is coming from is slightly different across the country, that might mean that one province is feeling it a little bit more than another province."

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Gas tax relief set to expire

When prices spiked earlier this year, many provinces moved to offer consumers some relief at the pumps by cutting gasoline taxes temporarily. Those cuts are slated to end soon, which will be another factor pushing up prices.

Alberta's fuel tax is normally 13 cents per litre but the province slashed that figure to zero during the crunch earlier this year. Starting tomorrow, however, the province will reintroduce a tax of 4.5 cents per litre.

In Ontario, the gas tax was cut to nine cents per litre from 14.7 cents on July 1, but that's slated to end on Dec. 31.

Victor Vallance, senior vice-president of natural resources and pipelines at DBRS Morningstar, said currency issues are also a factor. Oil is priced in U.S. dollars, and much like most other currencies, the loonie has been losing ground versus the U.S. dollar for weeks now.

"People are being squeezed all over," he said.

Credit belongs to : www.cbc.ca

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