MTG:Drivers' gas pains will last well into the summer, report suggests
Sustained trend in crude prices a prerequisite
BY JOHN MORRISSY, POSTMEDIA NEWS MAY 12, 2011 12:00 AM
It could be months before consumers get any relief from soaring pump prices, according to a report Wednesday from CIBCWorld Markets.
The fact that gasoline prices are near record highs after a sharp decline in crude prices has caught the attention - and anger - of Canadians paying almost as much to fill up as when crude surged to nearly $150 U.S. a barrel in 2008 before the financial crisis took hold.
But only after crude prices show they are in a sustained downtrend, and not just caught in the throes of volatility, will filling up the tank begin to cost less, economist Emanuella Enenajor says.
"In the summer of 2008, the world price of petroleum was moving lower, but the declines were not immediately reflected in the retail price of gasoline," Enenajor wrote in a research report.
"We only began to see clear declines in pump prices once the crude oil price was more than 20 per cent below its peak and declining for about two months."
Crude prices plunged 15 per cent last week, but only a fraction of that decline filtered through to motorists, Enenajor said. Many in central Canada were paying as much as $1.40 a litre, near the peak in 2008, reflecting retailers' expectations that petroleum costs would rise again, as indeed they did this week before falling sharply again on Wednesday, she added.
Even Wednesday's $5.67 U.S. drop in the price of U.S. crude, sending it below $100 a barrel to $98.21 U.S., was not enough to curb pump prices, which rose more than one cent Canadian on Wednesday to an average of more than $1.337 a litre, according to price-monitoring site Gasbuddy.com.
In Montreal, the average price for a litre rose to $1.46 on Wednesday morning.
The trouble is that gasoline production has dropped as refineries have undergone spring maintenance - curtailing supply - and flooding in the Southern U.S. heightened concerns of disruptions in refinery operations.
"That impact itself could tighten the market and potentially keep prices elevated for some time," Enenajor cautioned.
As well, summer driving season, whose demand drives prices higher, is still ahead.
The difference in crude and gas prices is reflected in what is referred to as the crack spread, or the margins at which refineries operate.
The spread is now at a multi-decade high, reflecting the drop in supplies, but also suggesting increased activity ahead, as refineries seek to capitalize on higher margins.
Enenajor was reluctant to say when lower pump prices may arrive, but added that even if crude prices remain elevated, higher refinery activity should ease the pain at the pump.
