Rising Oil Prices: Paying the Price at the Pump

While the rapid rise in global oil prices may help to give the Canadian equity market a bump, it has provided many Canadians with sticker shock at the pump. Oil prices have reached four-year highs, largely due to a reduction in supply, including production outages in Venezuela, increasing tensions in the Middle East and a reluctance of many global energy companies to invest in new production. But with oil prices remaining low for years, many are asking why gas prices have risen so rapidly. In fact, the average price we pay at the pump is higher today than back in 2008 when oil was trading at $145/barrel!

Higher Gas Prices can be Attributed to a Variety of Factors

First, the Canadian dollar is trading much lower than it was in 2008. Since much of our gas comes from U.S. refineries, we are paying for the lower Canadian dollar. U.S. refineries have been sending gas overseas, due to a stronger global economy, which has increased demand and prices. Here at home, many provinces have also enacted carbon taxes which have added to higher prices. As well, in the summer, gasoline blends are more expensive as environmental regulations require mixtures that don’t evaporate as quickly.

While this may not be good news for Canadians, consider that we pay a lot less than many of our global counterparts: a litre of gas costs around $2.73 in Iceland and $2.69 in Hong Kong!1

1 Based on prices at 5/14/2018.
Source: www.globalpetrolprices.com
Table Sources: WTI oil, www.eia.gov; gas prices, gasbuddy.com; exchange rates, Bank of Canada. At 5/14/18 and 7/14/08.