Gasoline prices dropped about 12 cents a liter overnight in Ontario and are down across much of Canada after a big dip in the price of crude oil this week that analysts say could be linked to recession fears.
GasBuddy reporting prices were down to about $1.79 in major cities in Ontario Thursday from $1.91 the day before, while cities like Vancouver and Montreal saw prices drop around six cents overnight.
Prices elsewhere in Canada should catch up soon to Ontario, said En-Pro international chief petroleum analyst Roger McKnight, who expects prices to continue to fall in the coming days.
“The 12 cent (decline) was due to basically market forces. It goes down another three tomorrow, and believe it or not, I’m looking at another seven on Saturday.”
He said the drop came despite gasoline inventors still being low, pointing to the shift coming largely from a change in investor sentiment.
“Someone on Wall Street said let’s bang a futures down, the futures market on New York Harbor, because they think we’re heading for a recession here and that’s just gonna erode demand severely. People won’t need much gasoline because they won’t be going anywhere, so that’s why the prices came down. It’s a complete turn of the tables if you ask me.”
Rory Johnston, founder of Commodity Context, says the lower prices at the pump came after crude dropped by about US$10 to fall below US$100 a barrel on Tuesday.
“The big thing we’ve seen kind of over the last month, over this week is a very pronounced fall off in both the value of crude oil globally as well as the kind of relative value of gasoline.”
The value of gasoline is another way of referring to the refinery margin, or the difference in price between crude oil and refined gasoline.
Prices at the pump have spiked both from higher crude prices and high refinery margins because of the limited capacity at processors. Johnston said that while crude price have been hitting upwards of US$120 a barrel, consumers have been paying the equivalent of US$180 a barrel because of the refinery margins.
Those margins however dropped about 25 per cent over Tuesday and Wednesday, and while it’s not clear what exactly caused the reversal, Johnston said it was worries about future demand linked to recession fears, speculators unwinding bets on future prices, or more refinery capacity coming online after maintenance season.
Right now, unfortunately, it’s a billion dollar question. And I think that the challenge is that we don’t fully know exactly what’s driving it down.”
He said prices will likely stay volatile, noting that the price of crude oil was trending upwards of five per cent on Thursday.
“What we’re likely going to see is kind of, you know, persistent and elevated volatility prices, but I don’t think we’re at a stage yet or we’re going to be expecting kind of true and kind of relief at the consumer level for the rest of the summer.”
This report by The Canadian Press was first published July 7, 2022.