Many Canadians have likely noticed that the cost to fill up their vehicles has come down over recent weeks.
At the same time, Reuters reported that CEOs of Canadian oil and gas producers said on Tuesday they are seeking to avoid making abrupt decisions as global oil prices hover around four-year lows and recession fears grow.
There are a few possible reasons for these price declines, some specifically for Canadians, along with factors affecting drivers and consumers globally.
The federal Liberals did away with the consumer carbon price shortly before calling the federal election while keeping the industrial carbon price for large emitters in place.
April 1 was the day the consumer carbon price ended. So far this month, there’s been a drop of roughly 15 to 20 cents per litre at most gas stations across the country.
“It’s one of the biggest (gas price) decreases we’ve ever seen across Canada. That goes to show how much the carbon tax has been costing Canadians,” says Patrick De Haan, a petroleum analyst at GasBuddy.
But, there’s more to the story when it comes to the cheaper cost of gasoline.
Stock markets have sold off since U.S. President Donald Trump started a trade war by imposing tariffs on other countries, including Canada, prompting fears of a global recession.
Oil is priced based on the outlook for supply and demand. If an economic slowdown is being predicted, then expectations are that consumers and economies will be using less oil not only for cars and trucks but also for planes, shipping boats, trains, industrial equipment and more.
On the bright side, prices at gas pumps have dropped sharply so far this month, leading many to feel less anxiety when that light on the dashboard comes on.
The national average is hovering around $1.30 per litre, down from the Canadian Automobile Association’s national average from one year ago of $1.63 per litre. So, an average fuel tank size of 50 litres means that a tank costs about $15 less to fill now than it did one year ago. Larger vehicles, such as SUVs and pickup trucks, could save even more.
Can the drop in gas prices last?
The carbon price has long been a hot-button issue for Canadians because of the added cost for consumers in addition to industry polluters.
Former prime minister Justin Trudeau had put in place rebates to offset the additional cost for average Canadians, sending those out several times a year, depending on eligibility.
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The final rebate payment is expected to arrive in bank accounts starting April 22, depending on when 2024 taxes are filed with the CRA.
It is difficult to know how effective the carbon price was at combating emissions, but Liberal Leader Mark Carney has suggested that a better alternative than a consumer carbon price will be considered should his party be re-elected on April 28.
Conservative Leader Pierre Poilievre has vowed to axe both the industrial carbon price as well.
The price of crude oil, which is refined into the gasoline we use at the pumps, is also contributing to a drop in gas prices.
Now that the consumer carbon price has been removed, De Haan says prices will reflect other factors,” like the declining price of oil, OPEC+ raising production.”
“So there’s still a lot of other levers left that are moving constantly,” he said.
The international oil group known as OPEC+, which includes many Middle Eastern producers, plans to increase production, which will add more barrels of crude oil into circulation. The more oil available for refinement, the lower the price, and this often translates to lower prices at gas pumps.
What isn’t clear is why OPEC+ plans to increase production, considering there are expectations for a drop in demand because of a slowing economy brought on by Trump’s tariffs.
“The threat of a global trade war has caused the price per barrel to plummet, and that’s going to translate to more gas price decreases. In addition, a week ago, OPEC+ decided to increase production faster than ever before,” De Haan said.
De Haan also says that this strategy may not be sustainable if too much oil is in circulation. It could undermine the economies of OPEC+ nations, as well as that of Canada and the United States because the value of investments in production has declined. Essentially, cheap oil is bad news for economies worldwide.
Oil prices dipped on Tuesday, trading over $60 per barrel and remaining near four-year lows as recession fears exacerbated by trade conflict between the United States and China offset a recovery in equity markets, Reuters reported.
ATB Capital Markets said in a research note that it still expects Canadian production to grow this year but warned that sustained lower oil prices would pressure companies to limit spending and constrain output growth.
Doug Bartole, CEO of Calgary-based InPlay Oil, said his company does not foresee reducing production or capital spending in the short term, despite the recent tariff-related fall in oil prices.
“Don’t make any rash decisions. Let’s take a longer view of things and see where it all settles out,” Bartole said in an interview in Toronto.
It’s hard to predict how long prices will remain at these decreased levels, but they can change overnight depending on a myriad of factors.
Geopolitical factors aside, summer driving season is just around the corner, a peak demand for travel. Be it by road, rail, air or water, chances are that prices for oil and gasoline will likely increase over the coming months due to seasonal demand.
So, it might be worth filling up and making those travel plans sooner rather than later.
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