Blogs & Comment

When will the gas-price stimulus arrive?

Why consumers aren't yet benefiting from the plunge in oil prices.

(Photo: David Fischer/Getty)

Crude oil prices have come down 20% since their spring peak. So why aren’t we seeing it in gasoline prices, a growing chorus of discontent is asking? Where I live in Vancouver, gas prices are down maybe 10¢ a litre in the past few months. Across the United States, the American Automobile Association reports, gas prices are down just 12¢ a gallon since the beginning of August.

People of a certain disposition will put it down to oil companies ripping off consumers, but we’re not yet at that point. First, because the crude oil prices we’re talking about are futures for delivery in 30 days, and don’t reflect what refineries are paying for their raw material today. Second, it takes time to ship the oil from the hub (where crude prices are set, say, Cushing, Okla., or Edmonton) to the refinery, to store it, to refine it and finally truck it to retailers. The gas you pump into your tank today was made from crude oil delivered a month or more ago, and half the drop in the price of crude has occurred just since Aug. 4.

Third, there is currently a wide geographical spread between prices for crude. Refiners in the U.S. Midwest, Ontario, Alberta, B. and Washington get their raw material from the Western Sedimentary Basin, production from which is growing thanks to the Alberta oilsands, the Bakken field in Saskatchewan and North Dakota and oil shales in the Rocky Mountain states. With insufficient pipeline capacity to take it to the Gulf Coast or elsewhere, that crude is pooling up and US$20 a barrel cheaper than the oil shipped from Alaska or imported from overseas.

So yes, these are fat times for continental refiners. But they are lean times for refiners in Quebec, the eastern seaboard and most importantly the Gulf Coast that have to compete for the same consumers while paying a higher price for their crude.

If these price differentials do anything, they make collusion among refiners and retailers impossible. Each has different circumstances to respond to. Across North America, gasoline demand decreased 1% this summer from last as vacationers stayed closer to home, meaning stores are not drawn down as they usually are when the season comes to a close.

The good news, according to gas price analysts at Kent Marketing Services (formerly M. J. Ervin & Associates), is that significantly lower gas prices of just above a dollar a litre are probably coming to Canada this fall, based on what’s already happened in crude markets. If that stimulus arrives too late to assist the ailing U.S. economy, the price will go even lower.