Gasoline expert: Expect to pay less at the pump this fall

Vancouver Sun, August 15, 2011

20% dip in oil not reflected at the pumps

With stock portfolios in shock given the markets’ recent gyrations, consumers have at least one thing to look forward to: The slump in oil prices happening in neartandem with the stock market blowout means motorists should see pump prices drop, if not immediately.

The benchmark price for crude oil is now about $86 US a barrel in New York – rebounding from an almost 12-month low below $80 a barrel last week – after reaching $110 US in early May. That marks a decline of about 20 per cent, raising the question of why gas prices haven’t followed.

Looking at different gauges of gasoline prices in Canada, the average price at the pump has come down less than 10 per cent over that same period.

Kent Marketing Services’ – formerly known as MJ Ervin and Associates – weekly Canadian gas price survey showed the average price for regular fuel this week nationally was a little more than $1.25 a litre and $1.15 in Calgary.

Kent’s records show the average pump price hasn’t been less than $1.20 since February and was as much as $1.35 in May.

During the financial crisis in 2008, while many lost money on the stock market or even their jobs, consumers got a big break on pump prices.

Crude oil fell from more than $145 US a barrel that summer to less than $45 US by the end of the year. The average price for gasoline went from more than $1.40 a litre to just more than 70 cents by the end of the year.

Jason Parent, senior consultant with Kent Marketing Services, said people often mistakenly think gasoline prices are supposed to move in direct correlation to the cost of crude oil, which is one of many factors that determines the price of gasoline.

He said refiners tend to get bigger profit margins on the finished gasoline product during the summer because there is more demand for it.

“In general, the refining margins over the last couple of months have been high,” Parent said. “Normally, this time of year, in the spring or the summer months, refining margins – or crack spreads, as people like to call them – come up and retail prices come up accordingly. It’s just a supply-and-demand thing.

“More people are driving in the spring and summer months, so demand tends to increase and that puts pressure on supply.” Parent said because quoted oil prices are usually for shipments due the next month, drivers should not expect an immediate effect on gasoline prices.

There is good news, however, with Parent saying the combination of lower demand for fuel and slumping prices on oil due for delivery next month likely bringing about lower pump prices in the fall. He declined to speculate how far gas prices would fall, but said it would likely be too optimistic to expect the average Canadian rate to fall to $1 a litre or less.

Tom Kloza of the U.S.-based Oil Price Information Service said gasoline prices will probably hit bottom by November and then climb.

“The rest of the world’s appetite for oil is growing,” Kloza said. “Notwithstanding what we are seeing now, the chances for a very robust winter-spring price increase are very high.”