Gas prices are expected to drop soon, but geopolitical risks remain

Consumers in Canada could see some relief at gas pumps starting next week as gas refineries go through regular seasonal changes, but how much gas prices will drop is unclear as geopolitical risks keep analysts guessing about the long-term outlook.

A drop in available oil supplies worldwide typically leads to higher gas prices, unless demand falls significantly, while the opposite effect usually will see lower gas prices.

Gas prices in Canada, and worldwide, have skyrocketed ever since the United States and Israel launched joint attacks on Iran at the end of February. The conflict has been ongoing ever since, with a temporary ceasefire in June unravelling after just a few weeks, and all the while keeping the vital Strait of Hormuz shipping channel virtually closed to most oil and gas shipments.

The Strait of Hormuz normally sees about a fifth of the world’s oil supply pass through on a daily basis.

But a switch to winter gasoline blends in Canada could see prices drop starting Sept. 16, as the new fuel starts arriving at retail pumps. In addition, gas prices typically fall during colder weather months because demand for gasoline decreases as Canadians do less driving compared to warmer months.

“Demand for gasoline declines across North America as Canadians and Americans drive less as temperatures progressively cool off. So that drop in demand usually gives us some drop in price,” says petroleum analyst Patrick De Haan at GasBuddy.

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“In addition, next week, we make the switch back to cheaper winter gasoline.”

Winter blends of gasoline, De Haan says, are typically cheaper than what is sold during warmer months because the blending components like butane are relatively low cost, but help improve vehicle performance in colder temperatures. The trade off is that butane contributes to more air pollution when temperatures are warm, and as temperatures cool off, more butane is allowed.

The national average price for regular grade gasoline sits at about $1.77 per litre as of publication, according to CAA, up from around $1.75 last week and $1.42 a year ago.

Without global volatility stemming from ongoing geopolitical tensions and other economic factors contributing to gas price changes, De Haan says these seasonal changes can usually result in a five to 20 cent per litre drop in the price of regular grade gasoline.

This means filling a 50-litre gas tank could see savings of about $10.

“It does vary year to year, but typically that would be a noticeable amount of relief. This year though, obviously a part of the traditional downturn could be offset by new action overseas,” says De Haan.

“Where we go, whether it’s higher or lower, it’s tough to know based on the balance of all these geopolitical tensions.”