MONTREAL – Canadian motorists should expect even lower prices at the pump in the coming weeks as a glut in the global supply of crude is expected to push retail gasoline prices to a two-year low.
Gasoline prices have plunged 23 cents per litre since the end of June as Brent crude, the international benchmark, has fallen nearly 20 per cent to US$85 per barrel from US$106.
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The price of West Texas Intermediate crude, the U.S. benchmark, has also been in sharp decline, with the November contract down a further $3.90 to US$81.84 a barrel on Tuesday.
The average retail gasoline price across Canada was about 1.23 per litre Tuesday, down from just under $1.43 on June 25, according to Roger McKnight, an analyst with En-Pro International.
Edmonton had the lowest price at $1.11 a litre on Tuesday, while Sherbrooke, Que., was highest at $1.34.
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McKnight anticipates prices falling further, perhaps even later this week.
“I could see it (crude) going down another $6 a barrel for WTI and that would translate in to another three cents per litre (at the pumps) within the next 30 days,” he said.
Prices are falling as Middle East oil producers have launched a price war by increasing production to preserve their market share in the face of increased output of U.S. shale oil and higher Canadian oilsands production.
With U.S. oil imports falling amid the highest domestic production since 1965, the Organization of Petroleum Exporting Countries is chasing customers in Asia and Europe in a move to block exports of U.S. shale oil, McKnight said in an interview.
Crude is trading at below cost so any further decreases makes new shale oil production unfeasible, he added.
“You may actually have to shut some down and it makes the oilsands very precarious indeed.”
WATCH: Gas prices are dropping. Tamara Forlanski reports from Winnipeg.
Energy-market watcher Dan McTeague said the low gasoline prices are good for Canadian consumers and businesses, but hurt the oil industry, government tax revenues and the Canadian economy.
“I think it’s very bad news for Canada as a whole,” he said.
McTeague said he doesn’t foresee the situation changing much until there is a fundamental shift in supply.
“Right now demand is slackening and supply is in surplus territory.”
The former Liberal MP said gasoline prices would be even lower if the Canadian dollar were stronger. In addition to the price war, oil prices have come down as money managers who were largely responsible for driving up prices walk away from long positions, he added.
“It does mean that between now and at least Christmas Canadians will continue to have something they haven’t’ had since before 2006 and that’s prices that reflect supply and demand, rather than premiums being based on innuendo and rumour by financial speculators.”