Why gas prices are high and why an expert says they won’t drop until the winter

Gas prices are expected to reach an annual high this summer across Canada and into fall, with more than one factor causing the increase, experts say.

Canadians are already paying more at the pumps over the last week with prices skyrocketing in some areas.

According to data from the Canadian Automobile Association (CAA), the average price across the country on Aug. 16 is 169.3 cents per litre. A week ago the average was 163.9 cents per litre.

GasBuddy, a gas price indicator, shows B.C. has the highest gas price at 192.8 cents per litre, followed by Nova Scotia at 186.3 cents per litre and P.E.I. at 186 cents per litre.

The lowest gas prices as of Aug. 16 according to GasBuddy are Alberta with a price of 146.4 cents per litre, the Northwest Territories at 159.3 cents per litre and Saskatchewan at 161.3 cents per litre.

Gas prices have been on the rise for a few months.

The July Consumer Price Index (CPI) report from Statistics Canada “mainly” blamed an increase in inflation on gasoline. Headline inflation increased from 2.8 per cent in June to 3.3 per cent in July.

“Excluding gasoline, the CPI rose 4.1 per cent, edging up from 4.0 per cent in June,” the CPI, released Tuesday, states.

Experts say there are a few factors playing into why the cost of gas increased and why the prices are likely here to stay.

WHY GAS COSTS MORE

Michael Manjuris, professor and chair of Global Management Studies at Toronto Metropolitan University, told CTVNews.ca in an interview poor weather and a lack of supply are to blame.

One factor behind higher gas prices, Manjuris said, is a recent decision from the Organization of the Petroleum Exporting Countries (OPEC), which controls crude oil supply to most of the world.

In June 2023, OPEC reduced the daily output of crude oil to 1 million barrels a day. This decrease drives costs up and will continue to do so as this cut is rolled out in other countries in the coming months.

“That’s a significant reduction in supply,” Manjuris said. “If there is no change in the world demand for oil…Then it’s basic economics: your supply goes down, your demand is the same, and we start to see a second factor, causing prices of retail gasoline to go up.”Storage for refined petroleum products is another concern, Manjuris said.

“We don’t have a lot of spare capacity,” he said. “So anytime there is a major weather event that hits refining areas like Texas, California or us (Canada)…That’s a significant chunk of the refining supply that gets taken off the market.”

Weather events like wildfires, tornadoes and significant storms can damage refineries that cannot be fixed quickly. Manjuris says when this occurs the plant can be down for months at a time.

“There’s a distribution center in Gretna, Man., where we have a convergence of crude oil pipelines, and twice this summer they’ve had to shut down that distribution center, only temporarily because the equipment couldn’t operate in a reliable fashion,” Majuris said.

In heatwaves, technology can malfunction and a reduction of capacity is needed or a full shutdown, he said.

PREDICTIONS FOR COMING MONTHS

Manjuris says some weather factors, like extreme heat, will not be an issue in the next few months, however, gas prices will remain elevated.

“Into late summer, early fall, all the indications I’m seeing is that the price of gasoline in southern Ontario, particularly, but across Canada, is going to go up,” he said.

Manjuris believes Canadians could expect close to $2 a litre over the next few months.

The heightened prices have been climbing for the past six months, Pedro Antunes, chief economist at the Conference Board of Canada told CTV News Channel Tuesday.

“When we’re comparing in June, we’re looking at the very strong or very high levels that we saw a year or a year prior, but in the last six months, gasoline prices have been increasing,” Antunes said.

Oil barrels have gone from US$70 to US$80, he said.

“That’s going to be reflected in gasoline prices going forward,” Antunes said.

Manjuris believes gas will continue to increase in price before it falls.

“I am personally predicting something between $1.95 and $1.98, in southern Ontario, into the early fall, but I suspect it will come back down by wintertime after that,” he said.

A petroleum summer blend costs more to make than winter blends, which is one of the factors why gas prices typically drop going into winter.

As a result of this, Manjuris says, there is always a reduction of price by about eight to nine cents a litre.

With files from CTVNews.ca’s Tara De Boer.