April 7, 2011

Gas Prices to Soar in Summer 2011

CANADA - Economists are scrambling to try and get an accurate picture of how high gas prices in Canada will go.

Some economists think gas prices might go as high as $2 per litre.

Others say that it is unlikely gas prices will go that high.

But lets have a current look at the gas prices across Canada...

The average price of gasoline in Toronto on Wednesday was $1.28 per litre, up 24% compared to the same day one year ago.

Its worse in Montreal, $1.39 per litre, also up 24% compared to last year.

In Vancouver the price of gas is $1.35, up 25% compared to one year ago.

And what is causing this?

#1. Growing Demand due to the growing economy. More jobs = more people out there buying cars, going on vacations, traveling farther to get to work, etc.

#2. Revolutions in the Middle East... Morocco, Algeria, Tunisia, Libya, Egypt, Lebanon, Jordan, Saudi Arabia and Yemen. Revolutions are spreading like wildfire and its led to a shortage in oil exports from the region.

#3. The closing of several strategic refineries in eastern Canada. Blame Stephen Harper for that one. They're building new oil refineries in Alberta, basically stealing jobs from the eastern provinces and sending them to Alberta, but the rest of Canada will have to suffer higher gasoline prices while we wait for the new refineries to be built.

#4. Soaring demand for gasoline in China and India, causing oil prices to keep rising as more Chinese and Indian people buy cars.

#5. The Summer Driving Season is coming... with warm weather comes more and more people just going "out for a drive", along with vacations, road trips, etc.

#6. Speculation from the Stock Market. Basically investors jumping in there and jacking the prices up farther than they need to be.

But is this enough to push gasoline prices up to $2?

According to Douglas Porter, deputy chief economist at the Bank of Montreal, oil prices would have to reach $215 / barrel for gasoline prices to go over the $2 per litre mark.

We disagree. We think Doug has his math backwards.

Based on the current ratio of $108 / barrel of oil = $1.30 for a litre of gasoline, we can expect that we would only need to see approx. $178 oil to get a result of $2 / litre gasoline.

According to Standard Bank they expect the average price of oil to rise 9% to $120 / barrel by the end of 2011, but they also say that we can expect higher oil prices during the Summer of 2011.

In 2008 we saw $147 / barrel oil, an all time record. Its possible if more problems happen that we could see oil prices go that high again, or even higher.

For example if Saudi Arabia got a full blown revolution on their hands it would really hurt oil exports to the USA, China and India, which in turn would cause a global shortage in oil.

On top of all this is the economic impact of higher transportation costs. The cost of food, retail goods, etc. all go up.

Jeff Rubin, former chief economist and managing director of CIBC World Markets, thinks $2 per litre gas prices could become a reality as soon as 2012 due to soaring world demand, fueled mostly by China and India.

“China alone added over a million barrels a day last year,” says Rubin, author of Why Your World Is About To Get a Whole Lot Smaller: Oil and the End of Globalization.

“We’re seeing absolutely no cessation in world oil demand. I think we’re looking at prices by the end of the year testing, and quite possibly exceeding, the $147 a barrel mark we saw in 2008.”

But those higher prices could lead to another recession as more people choose to put gasoline in the cars so they can get to work, as opposed to making their mortgage payments (the same problem which kicked off the liquidity crisis in 2008).

In the meantime check out

Blast from the Past: Hundred Dollar Oil recorded the 2008 oil crisis as it happened. If you look at the oil prices timeline you will note that it only took 4 months to go from

March 11th 2008 - $109.72 USD / barrel of oil.


July 11th 2008 - $147.27 USD / barrel of oil.

So a lot can change in a short time period.

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