Many Canadians have probably noticed that the cost of filling up their cars has dropped in recent weeks.
At the same time, Reuters reported that Canadian oil and gas executives said on Tuesday they are trying to avoid making any drastic decisions as global oil prices are near four-year lows and recession fears grow.
There are several possible reasons for these lower prices, some of which relate specifically to Canadians, as well as factors affecting drivers and consumers around the world.
The federal Liberals eliminated the consumer price on carbon shortly before the federal election, while maintaining an industrial carbon price for large emitters.
April 1 was the day the consumer price on carbon ended. Prices fell about 15 to 20 cents per gallon at most gas stations across the country that month.
“This is one of the biggest gasoline price reductions we’ve ever seen in Canada. It shows how expensive the carbon tax is costing Canadians,” says Patrick de Haan, an oil analyst with GasBuddy.
But that’s not all when it comes to lower gasoline costs.
Stock markets have been falling since U.S. President Donald Trump launched a trade war by imposing tariffs against other countries including Canada, sparking fears of a global recession.
Oil prices are formed based on supply and demand forecasts. If economic growth is forecast to slow, consumers and the economy are expected to use less oil not only for cars and trucks, but also for airplanes, ships, trains, industrial equipment and more.
On the other hand, gasoline prices have fallen sharply this month, making many people less anxious when the dashboard light comes on.
The national average price is hovering around $1.30 per liter, down from the Canadian Automobile Association’s average of $1.63 per liter a year ago. Thus, an average fuel tank capacity of 50 liters means it costs about $15 less to fill up a tank now than it did a year ago. Larger vehicles such as SUVs and pickup trucks can save even more.
Will the drop in gasoline prices last?
Carbon pricing has long been a hot topic for Canadians, as in addition to industrial polluters, the extra costs fall on consumers.
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Former Prime Minister Justin Trudeau introduced rebates to offset the extra costs for average Canadians, and sent them out several times a year, based on eligibility.
The final refund is expected to arrive in bank accounts starting April 22, depending on when 2024 taxes are filed with the CRA.
It’s hard to say how effective a carbon price has been in fighting emissions, but Liberal Leader Mark Carney has said a better alternative than a consumer price on carbon would be considered if his party is re-elected on April 28.
Conservative Leader Pierre Poilievre has vowed to repeal an industrial carbon price as well.
Lower gasoline prices are also helped by the falling cost of crude oil, which is refined into the gasoline we use at the pumps.
“Now that the consumer price on carbon has been eliminated, prices will reflect other factors,” such as lower oil prices, higher OPEC+ production.
“So that leaves a lot of other levers that are constantly moving,” he says.
The international oil group known as OPEC+, which includes many Middle Eastern producers, plans to increase production, which will increase the number of barrels of crude in circulation. The more oil available for refining, the lower the price, and that often leads to lower prices at gas stations.
It’s unclear just why OPEC+ plans to increase production, given that demand is expected to fall due to the slowing economy caused by Trump’s tariffs.
The threat of a global trade war has caused the price per barrel to plummet, and that will drive gas prices even lower.” In addition, OPEC+ decided a week ago to increase oil production faster than ever before,” says de Haan.
De Haan also says that this strategy could prove unsustainable if too much oil ends up in circulation. That could undermine the economies of OPEC+ countries, as well as Canada and the U.S., as the value of upstream investments would fall. Essentially, cheap oil is bad news for economies around the world.
Oil prices fell on Tuesday, trading above $60 a barrel and remaining near four-year lows, as recession fears, exacerbated by the U.S.-China trade conflict, offset a rebound in stock markets, Reuters reported.
ATB Capital Markets said in a research note that it still expects Canadian production to rise this year, but warned that a sustained decline in oil prices will force companies to curb spending and restrain output growth.
Doug Bartol, CEO of Calgary-based InPlay Oil, said his company has no plans to cut production or capital spending in the short term, despite the recent tariff-related drop in oil prices.
“We shouldn’t make any hasty decisions. Let’s take a longer-term view and see how things resolve,” Bartol said in an interview in Toronto.
It’s hard to predict how long prices will stay this low, but they can change overnight depending on a variety of factors.
Geopolitical factors aside, the summer driving season – the peak demand for travel – is just around the corner. Whether by road, rail, air or water, chances are that oil and gasoline prices will rise in the coming months due to seasonal demand.
So, it might be a good idea to get gas and plan your trips as early as possible.
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