Why Are Canada's Gas Prices Loony?

Three factors that could drive that nation's fuel prices up to more than $6 per gallon

Canada loonie (CSP Daily News / Convenience Store)

TORONTO -- Gasoline prices in Canada hit near-record highs this past April, but that may only be the beginning. Prices could hit $1.60 (Canadian) per liter--or more than $6.00 (U.S.) per gallon--this summer because of a confluence of events, including seasonal demand increases, geopolitical tensions and Canada's neighbor to the south, according to a report by Global News.

Capital Economics, a global independent research firm, pointed to the slide of the Canadian dollar--or "loonie"--against the U.S. dollar, to around 90 cents U.S. This is increasing costs for Canadian refiners, which buy oil in US dollars to make into gasoline, said the report. These refiners have absorbed some of the higher costs because of the currency swing, without passing it down to retailers and consumers, resulting in slimmer profit margins this spring compared to last.

However, if Canadian refiners attempt to gain more margin or if the loonie keeps losing value, gasoline prices could increase, even if oil prices hold steady.

"Assuming that crude oil prices hold, it is possible that seasonally adjusted gasoline prices could rise to $1.60 before the busy summer driving season," said Capital Economics.

In April, Doug Porter, chief economist at Bank of Montreal (BMO), told the news agency that there are three factors driving Canadian gas prices higher. They include:

  • Seasonal demand increases as the country heads into summer driving season.
  • Higher global demand for crude oil because of the harsh winter of 2013-2014 and tensions between Ukraine and Russia.
  • The weakening Canadian dollar. Because wholesale gasoline is priced in U.S. dollars, it immediately becomes more expensive for Canadian consumers, Porter said.

Jason Toews, co-founder of fuel price tracking website and app developer GasBuddy.com, told Global News that inflationary drivers are also at play, with refineries moving over to more expensive summer blends, a process that can restrict supply.