Conflicts in the Middle East and Ukraine have pushed diesel and gasoline prices up dramatically, straining Canadian households, but higher crude oil values have provided a boost to Canada’s economy as a whole. That’s according to a report released Tuesday by TD Economics, which argued that Canada’s role as a major oil producer is helping the country absorb the current energy shocks being felt around the world. “Higher crude prices remain a net positive for Canada through stronger exports, incomes and government revenues,” wrote TD economist and report author Marc Ercolao. “In a high price environment, Canada’s crude production has provided an important income and revenue buffer, but it does not make the country immune to tighter fuel markets.” The report notes that over the past six months, Canadian energy exports have risen by $4.5 billion per month on average, bolstering the coffers of oil and gas producers as well as provincial and federal governments. Crude oil accounts for most of those exports, “but interestingly, diesel is becoming a more important part of the equation,” Ercolao wrote. “Diesel’s share of total energy exports has more than doubled since the start of the war to 13 per cent and now accounts for over $2 billion per month in intake,” he explained. “What’s more, this suggests that Canada has become a marginal supplier to global markets, specifically parts of the U.S. and Latin America, Europe, and the U.K.” G7 releasing reserves Diesel demand continues to outpace supply, and prices remain near record highs in markets across the world. Earlier this month, the Group of Seven (G7) economies said it would be releasing 100 million barrels of oil and fuel products to global markets in the coming weeks, beginning with “substantial” amounts of diesel. One of the biggest proponents of the planned release is U.S. President Donald Trump, who faces political pressure to lower energy costs across the board before next month’s midterm elections. The release will help Canada in two main ways, Ercolao argued. “First, it lowers the risk of trade-related disruptions to North American diesel and gasoline supplies. Second, a front-loaded diesel release could lower Atlantic Basin and U.S. product benchmarks that influence prices in central and eastern Canada,” he said. “The magnitude of relief will depend on the location and specification of the barrels released, as well as the response of crack spreads and the Canadian dollar – details we will need to await.” Despite the benefits of higher crude prices on Canada’s economy, Ercolao noted businesses and consumers aren’t immune to the fuel prices set on the global market. “Higher diesel and broader refined fuel costs still reduce household purchasing power while compressing margins in sectors that cannot fully pass on the costs,” he wrote, adding that even if crude oil prices fall in the months ahead, gas and diesel costs won’t necessarily follow. “Crude markets appear to be healing faster than refined-product markets, but the energy shock is far from over. Until inventories rebuild and product markets rebalance, lower crude prices may not translate into the same degree of relief for households and businesses.”
