Gas prices reach a new 11 year high... story in National Post
April 28, 2001
Gas price hits 11-year high
U.S. Inventories slump: Refinery shutdowns could add another 4¢ to pump price
Claudia Cattaneo, Calgary Bureau Chief
Financial Post, with files from wire service
CALGARY - Low North American inventories spurred gasoline prices in
Canada to record highs this week, setting the stage for even higher
levels over the summer, when consumer demand peaks for the year's
busiest driving period.
Pump prices climbed to an average of 78.6¢ a litre for regular gasoline,
or 4.1¢ higher than last week, soaring above the previous record of
76.4¢ set in September of last year, according to MJ Ervin & Associates
Inc., a Calgary research firm that monitors pump prices in Canada.
Among 10 major Canadian markets, prices in Montreal were the
steepest, hitting 85.5¢ a litre, while Calgary enjoyed the lowest, at 63.3¢
a litre.
"Demand is going up and we are seeing a response to that anticipated increase," said Michael Ervin, the
company's president.
"Wholesale buyers of gasoline are out there bidding up the price . . . in order to secure supplies for their
customers."
In the United States, gasoline for May delivery rose as much as US1.08¢ yesterday to US$1.115 a gallon
on the New York Mercantile Exchange. The previous record for the futures, which have been trading for
17 years, was US$1.11 a gallon, set in August, 1990, after Iraq invaded Kuwait. Gas prices have climbed
5% this week and 21% this month.
Canadian gasoline prices roared past the Gulf War spike of 67.1¢ a litre early in 2000.
Mr. Ervin said prices could rise as little as 2¢ a litre, on average, this summer if there are no refinery
disruptions. However, "if there are any kind of big disruptions, that could easily double," he said.
Refinery shutdowns at Tosco Corp., Conoco Inc. and Royal Dutch/Shell Group in the United States and
Britain over the past two weeks have increased concerns there would be fuel shortages this summer.
U.S. inventories of reformulated gasoline fell 3.4% last week to 38.16 million barrels, the American
Petroleum Institute said, leaving them 8% below year-ago levels. In Canada, workers at three
Petro-Canada refineries and one distribution hub are on strike.
Ron Brenneman, chief executive of Petro-Canada, said volume has not been affected so far.
Mr. Brenneman and Tim Faithfull, chief executive of Shell Canada Ltd., said they anticipate strong gas
prices this summer because of rising demand for refined products and tight supplies.
Mr. Ervin said it is unlikely prices in Canada would hit $1 a litre, as suggested by some, since offshore
refiners would step in to fill North American needs.
However, pump prices would not soften until the end of the summer or early fall, he said.
He said high demand may be either a reflection of consumer confidence or an indication that Canadians,
faced with having to restrict spending in a slower economy, are opting to drive for their family vacations,
rather than fly.
Soaring gasoline prices motivated consumer protests last year and calls for a reduction in gasoline
taxes. The Canadian government benefits from higher pump prices because it collects more GST. In
2000, Ottawa reaped $4.95-billion from GST on gasoline sales, up from $4.89-billion in 1999, not
including the federal excise tax of 10¢ a litre, a Finance department official said.
Canadian governments also benefit from higher energy prices because they collect higher royalties and
corporate taxes from Canadian energy companies. A study by the Canadian Association of Petroleum
Producers this week estimated tax and royalty revenues of the federal and provincial governments will
rise to $60.5-billion in the 2000-2003 period, or 16% more than the two levels of government collected
during the past decade.
The tight gasoline situation has combined with signals from the Organization of Petroleum Exporting
Countries that it has no plans to open the taps any time soon to fuel an oil price rally.
In New York yesterday, U.S. light crude closed at US$28.27, up US99¢.
Rilwanu Lukman, Nigeria's envoy to OPEC, said he saw no reason for the oil cartel to "rock the boat" at
its June meeting, when members are meeting to review production quotas.
The remark raised concern the 11-nation group would not increase production to lower prices, analysts
said. Ali Rodriguez, OPEC's secretary-general, said this week OPEC's policy would be maintained in
June, but the group might open the taps on supplies in the third or fourth quarter.
Mr. Faithfull said marketing margins have not been as strong as might be expected because competition
among retailers is also more intense in a high price environment. Consumers shop around more for the
best deal, making it difficult to pass on higher wholesale prices, he said.
"At the end of the day, the retailers, the marketers, once they buy gasoline at these rather high
wholesale prices, they are out competing with each other for market share," Mr. Ervin said. For
example, "there was a price war in Vancouver yesterday, and this really is indicative of the fact that
regardless of the inventory situation, there is still fierce competition amongst dealers on the street."
GASOLINE PRICE SURVEY:
Average cost of regular gasoline at pump, per litre
Canada 78.8
Vancouver 75.8
Calgary 63.3
Regina 74.5
Winnipeg 64.7
Toronto 79.9
Montreal 85.5
Saint John 77.9
Halifax 83.1
St. Johns 84.9
Source: MJ Ervin & Associates Inc.
ccattaneo@nationalpost.com
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