Oil prices 'could set new record high' after ban on Russian fuel: expert

Toronto -

Russia's war in Ukraine has pushed gas prices to record levels as Canada and other countries impose sanctions on Russian oil. One expert says it could be a while before we see any relief at the pumps.

"There is no getting around the fact that the price of gas is ultimately tied to the price of oil. And right now, I think the message to motorists is that we better get used to oil remaining in the triple-digit range," said former CIBC World Markets chief economist Jeff Rubin in an interview with CTV's Your Morning on Friday.

Prior to Russia's invasion, oil prices had been steadily climbing since November 2021, after previously falling due to the rise of the Omicron variant of COVID-19. The price of brent crude peaked at around US$128 per barrel on Tuesday before falling to US$111 the following day. As of Friday, the price sits at around US$108.

In response to these figures, gas prices dropped Friday by up to 15 cents per litre in the Greater Toronto Area, Montreal and Vancouver, according to GasWizard.ca. But Rubin doesn't believe gas prices are going to "materially go down" unless there's new supply in the market.

"There's really no new source of supply. OPEC doesn't have any spare capacity. And in fact, they're producing about a million barrels a day less than they pledged," he said.

This is worsened by the fact that Canada, the U.S. and the U.K. have moved to ban imports of Russian fossil fuels. Russian production accounts for seven per cent of the world's oil market, and the country exports seven million barrels a day.

"If we lose the seven million barrels a day of Russian exports, oil prices could go significantly higher. I mean, they could set a new record high," Rubin said.

"Whether we lose all that seven million barrels a day remains to be seen, because while some countries have boycotted Russian oil, other countries like China and India may well increase their appetite for that product," he added.

U.S. officials have been in talks with the oil-rich country of Venezuela, despite their adversarial relations, in an attempt to fill the void left after the loss of Russian oil. But Rubin says Canada and the U.S. could also boost domestic production.

"Ironically, the two places in the world where you could increase oil production is Canada and the United States, I say ironically, because the governments of those countries view the petroleum sectors as sunset industries and policy-wise, are more interested in subsidizing wind and solar than promoting new production," he said.

U.S. President Joe Biden could reverse his administration's cancellation of the Keystone XL Pipeline permits, Rubin suggests. Alberta Premier Jason Kenney has also called on the Biden Administration to revive the project.

"That would not only increase oil in U.S. refineries, but would also allow for production increases in the Alberta oil sands," Rubin said.

But the Biden Administration has rejected these calls and said the proposed pipeline would do little to increase supply.

"Keystone was not an oilfield -- it’s a pipeline. Also, the oil is continuing to flow in, just through other means. So, it actually would have nothing to do with the current supply imbalance," White House Press Secretary Jen Psaki told reporters during a press briefing on Tuesday.

Even if the U.S. and Canada increase production, it could take another 12 to 18 months for it to have a tangible effect on oil prices. Rubin says the other policy solution would be to temporarily cut gas taxes, something that Alberta's government has already done.

"It's going to take a while. This isn't a problem that's going to go away overnight. And it's a problem that if it isn't addressed now, you could see much higher prices," Rubin said.