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Gas prices remain elevated worldwide in the fallout from the Iran war and some temporary relief at the pumps for Canadian consumers is set to end next month when the fuel excise tax pause expires.
It is not yet clear if the federal government plans to extend the pause, but if it does expire next month, then it could wind up costing even more to fill up.
Ottawa launched the temporary measure in April, which removed the federal excise tax from retail gas in Canada until Sept. 7.
“Clearly the removal of the federal excise tax took some of the sting away from these higher prices,” says Dan McTeague, president of Canadians for Affordable Energy.
“The effect has been to, I think, provide at least some mitigating factors in terms of higher prices but it hasn’t been able to hold back the stampede towards higher prices that have cascaded into the rest of the economy.”
The Iran war severely constrained global oil supplies, with the Strait of Hormuz shipping channel in the Persian Gulf region, which normally sees about a fifth of the world’s crude oil and other supplies, essentially closed to cargo traffic for fear of attacks. That’s on top of significant damage done to neighbouring oil, gas, energy and maritime shipping infrastructure and facilities.
The price of U.S. oil, known as West Texas Intermediate, was hovering close to US$82 per barrel as of publication, down from a recent high of about $83 on Wednesday and up from $75 a week earlier.
CAA says the national average for regular grade gasoline in Canada is about CA$1.67 per litre, up from $1.64 a week ago and roughly $1.33 compared to the same time last year.
The prices consumers pay for gasoline and diesel at retail are based on a combination of factors, including global expectations of supply and demand for crude oil, in addition to various taxes and other charges businesses may pass along to consumers.
The federal excise tax is charged on products like gasoline separate from other taxes like HST, which remains in effect.
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McTeague says bringing back the excise tax could mean an increase of roughly 10-11 cents per litre, depending on the region, and that’s separate from other factors that can change the price.
Without geopolitical and broader economic influences on consumer gas prices, there are also more predictable seasonal changes.
Most fuel makers are required to change the composition of their products depending on the time of year, with fall and winter months demanding different performance needs from summer gasoline blends.
Currently, gas stations in Canada are pumping summer-grade gasoline, which is formulated to reduce air pollution in warmer weather, and is comparably more expensive than winter blends.
When temperatures begin to drop, winter-grade gasoline is needed to help vehicle engines start more easily in freezing conditions. This is accomplished by mixing cheaper butane into the fuel and usually results in lower retail prices for gas compared to summer blends.
McTeague says the difference in price can be roughly eight or nine cents per litre, depending on the region.
The transition to winter gas in Canada begins after Sept. 15 — one week after the excise tax is scheduled to return on Sept. 7.
“On Sept. 15th, we return back to the formulation of winter-spec gasoline, and that really means that we might see an uncomfortable increase for one week as a result of the federal government ending the temporary suspension of the excise tax.”
This means, if the excise tax pause expires, then consumers may ride a bit of a gas price roller-coaster for about a week as a potential increase from the return of the excise tax on fuel after Sept. 7 may be somewhat offset by a decrease in price about a week later once winter fuel begins flowing out of retail fuel stations.
But there are more significant global factors which may throw a wrench in things over the long term, and that comes down to ongoing oil supply risks stemming from the Iran war.
Earlier this week, the International Energy Agency (IEA) said it expects global demand for oil to drop over the next few months because higher oil prices will lead consumers and businesses to reduce their consumption of products like gasoline. However, risks to oil supply worldwide remain “substantial,” the IEA says, as it also expects demand to increase again next year.
If the Iran war leads to prolonged oil supply constraints as demand increases, then oil and gas prices could skyrocket once again.
“There is going to in fact be much higher prices for longer, and if we’re uncomfortable with these prices, we’re going to have to get used to them for a very long period of time,” says McTeague.
“We have a critically historically low level of inventory around the world and that’s going to take months, if not years, to reconcile.”
“I think the current government will extend and continue the excise tax suspension, and I think the calls at that point will really depend on where prices are going to go.”
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