Gas prices are something that we often don’t pay much attention to unless they suddenly spike, as they did late last year. At that time, a number of factors, including American refineries down after hurricanes, led to prices jumping almost ten cents a litre in one day in some markets.
And it is the fact that unexpected events can, and do, occur, that makes forecasting what prices will do in the coming year difficult.
However, petroleum analyst Dan McTeague is doing just that, having just released his 2018 Gasoline Forecast. McTeague runs the website gas buddies.com. He presents his forecasts with this caveat; this outlook is not indicative of what will happen but rather what we believe could happen given specific inputs, potential impacts on production as well as supply and demand.
“Circumstances beyond Canada’s control, including a surging U.S dollar versus a weaker Loonie, increasing U.S. fuel demand and growing exports, will put a premium on what Canadians will pay at the pumps in 2018. We estimate pump prices will therefore rise an average of 5 cents a litre across the country,” he said.
McTeague expects the Canadian average price for gasoline in 2018 to be $1.19 per litre; lower in the winter than summer. And different cities will see different prices. Vancouver, for instance is forecast to see the highest peak prices at $1.52 while Winnipeg and Saskatoon should top out at $1.29. The highest price forecast for Calgary is $1.33.
“When we take a closer look, we see that volatility is built into the price we pay at the pump because many components, both globally and locally, have a hand in simultaneously pressing those prices higher and/or lower,” Teague says in his report. “These components include: the specific time of year and the federal regulations that dictate whether ‘summer blend’ or ‘winter blend’ gasoline must be available, and how much; the strength of global economies; the relative value of major currencies; crude oil prices; supply and demand of oil and gasoline; refinery operations; pipeline logistics; taxes; weather; OPEC policy; and, last but not least, politics.
“For gasoline, a stable benchmark price for oil is only part of the story. Seasonal price differences such as formulation changes from winter-to summer and then summer-to-winter blends, are just the first of many factors influencing pump prices in both the U.S. and Canada. Propelled by a stronger economy, and greater exports, demand for petroleum products continued to rise at record-setting levels. Indeed, as noted last month by the API (American Petroleum Institute), consumer gasoline demand for November was the strongest for that month ever. If the demand for gasoline continues to reach or exceed previous records, it stands to reason that 2018 will be on course to see a corresponding rise in pump prices. But that’s only part of the reason.
“Variables to the direction of gas prices are also likely to be influenced by fiscal and monetary policies, such as government budgetary moves in the area of taxation and the decisions of central banks, like the U.S. Federal Reserve or the Bank of Canada, on interest rates. Direct moves by governments to increase fuel taxes, as seen in California in November or carbon taxes introduced in Alberta and Ontario in 2017, also add to the prospect of higher prices for fuel in the year ahead. A stronger economy that affords motorists more disposable income matched with greater vehicle fuel efficiency will continue to incentivize Canadians to take to the roads and quite possibly lead to a fourth consecutive year of increasing demand for fuel. This means that refineries need to operate at optimum levels of output at all times, something of a tall order, especially in areas of the U.S. Midwest, the Pacific Northwest, California and the Northeast, where gasoline can be exported to foreign markets, if the price environment abroad is more attractive. Known as an “arb” or price arbitration, the recent rise in U.S. petroleum product exports, reflects a new price challenge for Canadian drivers — one that will contribute to higher costs for gasoline in 2018.
“After taking into consideration all of the above, GasBuddy analysts constructed this forecast for the Canadian average price of gasoline, month-by-month, for 2018. We anticipate that consumers will see gas prices that will be higher than 2017, slightly lower than levels seen in 2014, with a yearly average of $1.19 per litre, the highest since 2014.”