The Canada Day long weekend sent gas prices down sharply in some parts of the country, but the relief at the pumps may not last long, analysts say.
According to GasWizard.ca, prices in the Greater Toronto and Ottawa area fell 11 cents a liter on Friday and fell another six cents on Saturday to settle at 187.9 cents a litre.
Gasoline prices in Montreal also fell six cents on Saturday after falling four cents on Friday. In Vancouver, prices fell seven cents on Friday and another seven cents on Saturday. Winnipeg and Halifax also saw gasoline prices drop by three cents on Canada Day, while prices in those regions remained steady on Saturday.
The declines come after crude oil prices fell in June after the U.S. Federal Reserve raised interest rates, stoking fears of a recession.
“I think markets panicking is probably the best way to describe it.” A little bit of overzealousness in terms of recession concerns and demand destruction,” GasWizard founder and Canadians for Affordable Energy president Dan McTeague told CTVNews.ca in a phone interview Saturday.
In Ontario, which saw the sharpest drop in gas prices, the drop in oil prices coincided with the provincial government’s temporary gas tax cut of 5.7 cents a litre. Other provinces have already cut gas taxes, including Alberta and Newfoundland and Labrador.
Despite the tax cuts, Roger McKnight, chief oil analyst at En-Pro International, says Canadian gas prices largely follow what’s happening in the U.S., where there continues to be a large supply-demand mismatch.
“Canadian prices are not made in Canada. They really follow whatever happens with the wholesale price in the United States. And in that regard, we have a situation where crude oil inventories are down 13 percent from the five-year average. Gasoline is down eight and diesel is down 20,” he told CTV News Channel on Saturday.
Although OPEC pledged to increase output, the group fell short of its targets as Libya and Nigeria slowed output in June, Reuters reported. Earlier this week, French President Emmanuel Macron told US President Joe Biden that Saudi Arabia and the UAE were already producing at full capacity.
“I think the reality is we’re still no better than we were months ago, which is that fuel supply remains a challenge and demand is not abating,” McTeague said.
Facing pressure from voters ahead of U.S. midterm elections this fall, Biden is urging domestic oil companies to increase output while pressuring Gulf states to increase supplies. The White House is also considering expanding offshore oil drilling in the Gulf of Mexico.
“[Biden’s] we’re struggling to find a secure supply or a steady supply of crude oil, and that’s a long shot,” McKnight said.
McKnight says he expects a five-cent increase in gas prices by Monday and says it’s unclear which way prices will move this summer.
“It’s very hard to say,” McKnight said. “There are 16 factors that affect the price of a liter of petrol and if one of them changes, it changes the whole picture”
But McTeague predicts that gasoline prices will only go up from here in the next two months, saying the gap between supply and demand won’t be resolved anytime soon.
“What we saw here last week was a bit of a fake … not a reflection of the fundamentals,” he said. “It’s pretty clear that July and August will see much higher prices.”
With files from Reuters.
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