Buckle up Canadian drivers. The new year could put average gas prices on a bumpy road to a five-year high.
GasBuddy, a website that tracks pump prices at more than 150,000 gas stations, predicts this year will be the most expensive for drivers since 2014 thanks to a confluence of factors, including rising oil prices and Ottawa-imposed carbon taxes.
“It looks like the stars are aligned for crude to make a significant comeback based on fundamentals. And no one will escape the carbon tax,” petroleum analyst Dan McTeague told Yahoo Finance Canada on Wednesday. “Canadian drivers should expect a bumpy ride at the pumps in 2019.”
Federally-mandated carbon taxes are set to take effect on April 1 for provinces that have not adopted their own levies or cap-and-trade systems. (Ontario, Manitoba, Saskatchewan and New Brunswick.) The tax will price carbon at $20 a tonne, or 4.4 cents per litre of gasoline. That’s set to rise to $50 in 2020.
Meanwhile, West Texas Intermediate (WTI) and Brent crude showed signs on Wednesday of reversing course on a skid that began in October. Traders were encouraged by signs that Saudi Arabia is starting to follow through on promises to cut its output. January also marks the beginning of OPEC’s pact with 10 other producing nations to cut production by 1.2 million barrels per day.
“OPEC is getting its act together . . . Alberta is getting its act together, cutting 325,000 barrels per day,” McTeague said. “These chickens are going to come home to roost. We will be back to where we were in September and October with US$70 oil.”
WTI climbed 4.07 per cent to $47.26 per barrel and Brent rose 3.55 per cent to $55.71 per barrel at 1:38 p.m. ET on Wednesday.
Pricier oil will pack an extra punch at the pumps if the Loonie remains weak against the U.S. dollar, since oil prices are set in that currency. The Canadian dollar strengthened in step with oil on Wednesday to US$0.7356 at 2:23 p.m. ET. On Friday, the Loonie dropped to $1.3665, its weakest level against the greenback since May 2017.
GasBuddy said it accurately predicted prices in 2018 would reach their highest annual average since 2014’s $1.263 per litre. Last year, the average price per litre was $1.242.
McTeague expects forecasting this year’s average will be tougher given the increased volatility of geopolitical, economic, and currency factors that impact gasoline. He remains confident 2019 will prove more expensive than 2014.
What could prove him wrong? The answer is not pretty.
“If we don’t get any kind of resolution to the trade standoff between the U.S. and China, and a disruptive Brexit, or evidence of a global slowdown, all of those are really the only factors that could see a reversal in oil’s move upwards with gasoline prices,” McTeague said.