Cost per litre could hit 85 cents this spring in Toronto
Research firm blames higher crude prices, higher demand

March 2004.

Prices at the gas pump appear headed for record highs this spring.

The average price for a litre of gas could hit 85 cents in Toronto and more in other parts of Canada, according to Calgary-based market research firm M.J. Ervin and Associates.

That's almost 2 cents above last year's Toronto high of 83.1 cents, a record, Michael Ervin noted, and 20 cents above yesterday's average price at the pumps across the city.

The previous record was set last March at the onset of the Iraq war, which threatened to disrupt crucial supplies of crude oil from the Middle East.

"Going into the spring there's going to be an upward trend," Ervin said in a telephone interview from his Calgary office. "Will we see $1 a litre gas? No. Not for regular gas. Not in Toronto. That's for sure."

That's because Toronto is the most competitive gasoline retail market in the country, according to the Ontario Ministry of Energy.

Prices in this market can fluctuate by as much as 10 cents a litre within days, or even hours, ministry analyst Spencer Knipping explained.

A number of factors are playing into the rising trend this time around, including higher prices for crude oil (the basic ingredient in gasoline), higher demand from a recovering U.S. economy and the growing Chinese industrial powerhouse, as well as new U.S. environmental regulations, which could disrupt supply.

Underlying the turmoil is a longer-term problem: No one has built a new oil and gas refinery in North America for 20 years, yet demand is rising by 1.5 per cent a year.

The gap between demand and supply further widens during seasonal fluctuations. In the summer, demand rises as much as 25 per cent, Ervin said.

It all adds up to higher prices at the pump and continuing market volatility, analysts said yesterday.

In the United States, retail gasoline prices were within a cent of their all-time high yesterday and the U.S. Energy Information Administration, the statistical arm of the U.S. department of energy, cautioned pump prices could hit $1.83 (U.S.) a gallon this spring, their highest level since 1985.

Rising crude oil prices, which account for nearly half of gasoline costs, are fuelling much of the increase. Even though Canada is self-sufficient in crude oil, it competes in the global world market. So, Canadians pay world oil prices or risk seeing their oil exported to other countries.

A recovering U.S. economy, combined with China's industrial expansion, is creating higher than expected demand at a time when the Organization of Petroleum Exporting Countries (OPEC), which accounts for 70 per cent of the world's oil supply, had planned production cuts.

Demand is normally weak in the spring gap between the winter heating season and the summer driving period, but U.S. crude oil inventories have fallen to their lowest levels since the mid-1970s.

Crude oil futures, which have been rising for three months, pulled back slightly to $36.28 a barrel on the New York Mercantile Exchange yesterday. But they're still well above OPEC's target range of $24 to $28 a barrel, analysts noted.

There's speculation the powerful cartel of oil exporting countries wants to raise the upper limit to offset the lower U.S. dollar, which is cutting into their buying power.

In addition, new U.S. environmental regulations could disrupt supply this summer, further creating pressure on retail gasoline prices, analysts said.

In Toronto yesterday, the average price at the pumps was the lowest in Canada, at 65.1 cents a litre, down 2.3 cents from the previous Tuesday, according to Ervin's weekly report.

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