Why Are Gas Prices Low & What It Means For Canadians
All across Canada, gas prices continue to drop as the cost of crude oil per barrel plummets, leaving many Canadians wondering what it means for them.
Fuel nozzle with hose isolated on white background
Drivers are getting a big windfall at the gas station when they top off their tank these days. According to the national average, gas is 35 cents cheaper per litre at the pump than it was a year ago.
With gas prices, on average, falling below $1 per litre in most Canadian cities – the lowest we’ve seen in six years – by spring, typical consumers will be saving an average of $25 a week, or $300 in three months.
The Canadian Automobile Association (CAA) believes Canadians will be hitting the road and traveling more often, thanks to the extra money in their pockets. Restaurants will also profit from low gas prices, as more and more Canadians will be eating out.
The historically low gas prices are reflective of crude oil prices. In June 2014, the price of crude oil was $115 USD per barrel. As of mid-January 2015, it has plummeted to $45 USD per barrel. Many Canadians are wondering if this trend will continue and whether cheap gas is harmful or beneficial to our economy.
Why Gas Stations Are Seeing Cheap Gas
For many of us, knowing where to find the cheapest gas and how far it is off your commute is something we think about more now than we did last year. Using gas-pricing websites like gasbuddy.com or getgasprices.ca takes the hunting out of the equation and displays all the cheapest gas prices in your province.
As gas stations are competing for your business, they are also wondering themselves how low the price of gas will go.
To answer that question, we must look to why gas is the cheapest it’s been in six years. For most of the past decade, oil prices remained high at around $100 USD per barrel. This was in part due to the growing oil consumption in China and Iraq. Oil production couldn’t keep up with the demand, so prices soared.
This served as a catalyst to spur American and Canadian companies to drill for hard-to-extract crude oil, specifically in North Dakota’s shale formations and Alberta’s oil sands.
The demand for oil in European countries, Asia and the United States started to lessen due to new and better energy-efficiency procedures. With the global production of crude oil slowly exceeding the demand needs, prices started to fall in September 2014.
By October, retail gasoline prices were reflective of dropping crude oil prices.
Although there is no clear indication of how low gas will go, more than half of Canada is continuing to see gas prices drop, even reaching as low as 78 cents per litre in parts of Alberta.
The Downside of Low Gas Prices
While low gas prices are giving Canadians’ bank accounts a break, Canada’s gain is Alberta’s pain. The Canadian dollar is often referred to as a “petrodollar,” meaning its value is closely tied to fluctuations in oil prices. So, when gas prices sink, so does the loonie.
While a weak loonie, relative to other currencies, is good for the tourism industry, it usually means layoffs for many of Alberta’s oil sands workers.
Oil productions in Alberta are looking to cut costs as they lose money with the weakening loonie, thus pushing the unemployment rate from 4.5 per cent to a predicted 6 per cent by spring. Specifically, Shell, one of the largest energy and petrochemical companies, has announced they are going to lay off an estimated 300 workers from the Albian Sands project by March.
Who can we look to with the plummeting costs of oil dipping further as each day goes by? OPEC, the Organization of Petroleum Exporting, is a group of countries who are responsible for stabilizing the worldwide oil markets.
Currently, the organization is doing nothing to change the circumstances causing crude oil costs to dip further down the economic ladder. Their decision to not scale back production is seen as a strategic way to shut down oil production in the United States and Canada, thereby monopolizing the distribution of the world’s crude oil.
So, what can Canadians expect for gas prices this year? While drivers, tourism industries in Canada, restaurant owners, and companies that rely on traveling are benefiting from a break on gas prices, not everyone is so happy.
Steel companies responsible for producing drillers, “frackers” and pipes for oil producers, and companies that benefit from oil production in Canada are forced to downsize and cut costs in order to protect what gains they’ve had in light of oil prices continuing to sink.
Canadian Drivers Can Relax For Now
For drivers across Canada, having lower fuel costs over the holidays was a bonus. With the New Year ahead of us, we continue to look forward to low gas prices, but history tells us it won’t last forever. For now, enjoy cheap gas while it lasts.