‘Not good’: Gas prices jump 5 cents but relief expected at the pumps this weekend

Prices at the pump have responded to the instability in the Strait of Hormuz, but experts forecast some relief is on the way. John Vennavally-Rao reports.

KING CITY, Ont. -- Motorists heading north of Toronto to cottage country Friday were greeted by an unwelcome sight: gas prices back above $1.70 a litre after jumping about five cents overnight.

Yussuf Mohamad was filling up for a 90-minute drive each way to a job cleaning cupboards.

“It’s going to cost me fifty dollars just to go to a job,” he said, calling the price jump “not good.”

Still, he was taking it in stride. “What can we do? It’s nothing we can control, right?”

Prices were up across the country Friday, with the national average sitting at $1.72 a litre, according to Gaswizard.ca.

Brian Cammaart set out from near Dresden, Ont., pulling a trailer to Algonquin Park — a journey of about 500 kilometres. Calling his pickup truck “thirsty,” he estimated the damage.

“I bet the whole trip is going to be four hundred bucks of gas, easy,” he said, adding he has slowed down on the highway to save fuel.

Monica Bolland, on her way to a family reunion in Huntsville, Ont., said she understands there are forces at play beyond anyone’s control — but only up to a point.

“It’s very expensive. I know there’s issues right now in the world,” she said. “But I also don’t understand, because I hear Canada has a lot of supply, so I’m wondering why the price is being transferred to us as opposed to some of the gas companies taking some of the hit.”

Relief coming - briefly

Despite the resumption of hostilities between the U.S. and Iran this week, gas prices are actually expected to fall this weekend.

Dan McTeague, president of Canadians for Affordable Energy, says in some markets gas will drop two cents a litre on Saturday and “likely three or four cents a litre on Sunday.”

“That’s counterintuitive to economic fundamentals,” said McTeague, who says prices are “defying gravity” and that nothing about the current market is normal.

He believes the U.S. President Donald Trump is using every lever at his disposal to keep oil prices down ahead of the midterm elections, including, he claims, short selling of oil by the U.S. Treasury Department.

“So what’s happening is, we’re getting a bit of a head fake,” said McTeague. “Things should be going up. In fact, they’re being pushed down.”

Oil market shrugs off the conflict

The price of West Texas Intermediate crude jumped to US$76 a barrel after the U.S. president declared the ceasefire with Iran was effectively over on Wednesday. But with efforts underway to get talks back on track, the price had settled closer to US$71 by Friday.

Andy Lipow, president of Lipow Oil Associates, says traders are betting the latest round of fighting won’t escalate into a full-blown war and are not pricing in a full closure of the Strait of Hormuz.

“I think the new normal is that we’re going to see skirmishes from time to time between Iran and the U.S., interspersed with periods of relative calm, allowing tankers to enter the Persian Gulf, load crude oil, and then depart,” said Lipow.

He notes that since the memorandum of understanding was signed three weeks ago, tens of millions of barrels of oil have departed the Persian Gulf.

Higher prices ahead

The reprieve may not last. McTeague points out that strategic petroleum reserves around the world have been drawn down in recent months, and he expects the U.S. reserve to fall below 300 million barrels by the end of July — at which point he says a physical shortage of oil will have to be reckoned with.

“You’re likely to see serious shortages around the world, and that starts at the end of July,” he said. “At which point, Congress and others are going to begin to ask questions.”

He expects prices to head back up by the end of July or the beginning of August.

“The market will have to make a decision whether or not they can continue to ignore a physical shortage, a crunch, a supply scarcity,” said McTeague.

Even with the weekend dip, he notes, “gasoline is still 40 cents a litre above where it was this time last year.”