Prices at many Edmonton gas stations have jumped to about $1.50 per litre for regular gasoline, as the conflict in the Middle East drives up the price of oil.
Wholesale gasoline has risen roughly 20 cents since Tuesday while diesel is up nearly 40 cents — which energy analyst Dan McTeague said has a much wider impact.
“Those prices are going to be making their way throughout the entire economy,” said McTeague, who is the president of the advocacy group Canadians for Affordable Energy.
“The reality is, diesel is at the core of the global economy — the global economy’s workhorse — and as we’ve seen an increase of about 20-25 per cent of its value just in the past 96 to 120 hours, it’s likely to have a much longer-lasting impact on affordability and inflation in Canada.
“Diesel prices affects everything.”
The jump at the pump coincides with global oil prices, which have soared in the days following the joint attack by the United States and Israel on Iran.
Iran responded by closing the Strait of Hormuz at the mouth of the Persian Gulf — one of the busiest and most strategically significant shipping routes in the world and a key oil choke point — going so far as threatening to set ships on fire if they enter the strait.
About 13 million barrels of oil per day normally move through the waters — about 25 per cent of global oil shipments. It’s not just oil: about 20 per cent of the world’s total liquified natural gas (LNG) supply also comes through this route.
An infographic showing the Strait of Hormuz.
Bedirhan Demirel/Anadolu via Getty Images
The closure has disrupted oil and gas shipments from the region and rattled markets around the world.
On Monday, March 2, Brent Crude — the global benchmark — reached about US$79 per barrel before declining slightly, about eight per cent higher than last week’s prices. By Friday, it had jumped up to nearly $93US a barrel.
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Meanwhile West Texas Intermediate, the North American benchmark, started the week at US$71 per barrel — a six per cent increase over the weekend — before ending the week increasing to $90US a barrel.
It’s the biggest weekly gain since Russia invaded Ukraine, said Richard Masson, an industry analyst and former CEO of the Alberta Petroleum Marketing Commission.
“The global energy market right now is in turmoil, nobody knows what’s going to happen next,” Masson said.
For Canada, the conflict is likely to lead to not just higher prices for gasoline and diesel, but increased prices for imported goods, according to Warren Mabee, director of the Queen’s University Institute for Energy and Environmental Policy.
Although Canada is a net oil exporter, Mabee said domestic fuel prices are tied to global benchmarks and reflect international volatility while at the same time, the Canadian oil patch often benefits from higher global prices. Elevated prices can boost revenues and investment in the sector, even as consumers face higher costs at the pump.
It also boosts the Alberta government’s bottom line.
The price of oil tends to make or break the province’s budget, which is heavily reliant on royalties from oil and gas operations in the province.
Last week, the provincial government projected a $9.4-billion deficit for the coming year, based predominantly on what, at the time, were slagging oil prices of US$60.50 per barrel.
Masson said this week’s increase, if sustained for a length of time, could mean hundreds of millions — if not billions — more into provincial coffers than what was expected when the budget was announced.
So far, though, there’s no sign of operational changes within the private sector.
“We haven’t seen any indication that investment will grow up or jobs will grow, but it means a higher level of profitability for the companies and that translates into higher royalties and taxes,” Masson said.
Alberta’s finance ministry on Friday said in a statement it’s too early to determine whether recent fluctuations will have an impact on the budget.
“Higher prices can support resource revenues if they are sustained, but it’s important to remember that revenues are driven by monthly average prices over time, not daily trading levels.”
Masson said the disruption to shipping and the prospect of reduced flows through key routes will keep upward pressure on global oil prices until the situation eases.
“Until this conflict resolves in a way that we can view Iran as less hostile, I don’t think there are going to be many ships moving through there, so oil prices globally are going to continue to ratchet up as long as this carries on,” Masson said.
McTeague says that means consumer gas and diesel prices will also continue to increase.
“Next week we might see prices go even higher — another 10 to 12 cents at least on the gasoline side, and probably another 20 cents on the diesel side.”
Canada could have avoided being affected so much if it invested more in getting its own oil and gas resources to the global market, McTeague argues.
“An energy-rich country has become consumer poor and has become totally dependent on unreliable outcomes,” he said.
— with files from Lauren Krugel, The Canadian Press
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