The Canada Day long weekend saw gas prices plummet in parts of the country, but the relief at the pumps may not stay for very long, analysts say.
According to GasWizard.ca, prices in the Greater Toronto Area and Ottawa fell by 11 cents a litre on Friday and dropped again by six cents on Saturday, settling in at 187.9 cents a litre.
Gas prices in Montreal also saw a six cent drop on Saturday after a four cent decline on Friday. In Vancouver, prices dropped seven cents on Friday and by another seven cents on Saturday. Winnipeg and Halifax also saw a three cent drop in gas prices on Canada Day while prices in those regions held steady on Saturday.
The decreases come after crude oil prices slid in June following the U.S. Federal Reserve’s interest rate hikes, sparking fears of a recession.
“Panicking markets, I think, is probably the best way to describe it. A bit of overzealousness in terms of concerns about recession and demand destruction,” GasWizard founder and president of Canadians for Affordable Energy Dan McTeague told CTVNews.ca in a telephone interview on Saturday.
In Ontario, which saw the most steepest declines in gas prices, the slump in oil prices coincided with the provincial government’s temporary 5.7-cent per litre gas tax cut. Other provinces have already cut gas taxes, including Alberta and Newfoundland and Labrador.
Despite the tax cut, Roger McKnight, chief petroleum analyst at En-Pro International, says gas prices in Canada largely follow what’s happening in the U.S., where there continues to be a large discrepancy between supply and demand.
“Prices in Canada aren’t made in Canada. They really follow whatever happens to the wholesale price in the United States. And in that regard, we have a situation where the crude inventories are down 13 per cent versus the five-year average. Gasoline down eight and diesel down 20,” he told CTV News Channel on Saturday.
While OPEC had pledged to boost output, the group has failed to meet its targets as Libya and Nigeria slowed production in June, Reuters reported. Earlier this week, French President Emmanuel Macron told U.S. President Joe Biden that Saudi Arabia and the U.A.E. were already producing at capacity.
“I think the reality is that we were still no better than we were months ago, which is that supply of fuel remains challenging and demand is not slacking,” McTeague said.
Facing the pressure from voters ahead of the U.S. midterm elections this fall, Biden has been urging domestic oil companies to ramp up production, while putting pressure on Gulf countries to boost supply. The White House is also considering expanding offshore oil drilling in the Gulf of Mexico.
“[Biden’s] scrambling to look for a secure supply or a steady supply of crude, and that’s a long shot,” McKnight said.
McKnight says he expects a five cent increase in gas prices by Monday and says it’s unclear which direction prices are going to go this summer.
“It’s very difficult to say,” McKnight said. “There’s 16 factors that go into the price of a litre of gasoline and if any one of those changes, that changes the whole picture”
But McTeague predicts gas prices are only going to go up from here over the next two months, saying the difference between supply and demand won’t resolve anytime soon.
“What we saw here last week was a bit of a head fake… and not a reflection of fundamentals,” he said. “It’s pretty clear that there will be much higher prices come July and into August.”
With files from Reuters.