Jameson Berkow

Anchor, Reporter

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“Rockets and feathers” is a common expression among gasoline market insiders that, once understood, will eliminate any hope Canadian drivers might have for lower prices at the pump next year.

Gasoline prices “adjust to changes in oil prices faster when gasoline prices are relatively low compared with oil than when gasoline prices are relatively high compared with oil” is how the Federal Reserve Bank of St. Louis explains the phenomenon. More simply put: gas stations are quick to raise their prices whenever oil climbs in order to protect their margins, but when oil prices fall, fuel retailers take their time adjusting downward as drivers have already become accustomed to paying more.

Gasoline prices “are definitely sticky on the downside,” Victor Vallance, senior vice president of global corporates at DBRS Morningstar, said in an interview. Beyond that historic reality of the relationship between crude oil prices and what consumers pay at the pump, Vallance and other experts believe several other factors are at play that will keep gasoline at elevated levels throughout most of 2022.

“You’ve had refineries shutting down, without new ones coming online, so there is less capacity now to produce refined products, which means less competition keeping them from pushing up their margins,” Vallance said. “The costs are also a little bit higher to transport products from refineries to individual gas stations so that enters the equation as well, along with higher labour costs and supply chain issues.”

Patrick De Haan, head of petroleum analysis for GasBuddy, also said “2022 might be another elevated year at the pump.”

“The risk is, I think, that oil prices will start the year high and might even rise slightly in the spring and maybe into the summer before starting to come back down by the fall of 2022,” he said.

The big question, according to De Haan, is whether gasoline demand will spike again next summer.

“A lot of Canadians and Americans got out in the summer of 2021 after losing 2020 so there may not be as much demand this summer, and with both U.S. and Canadian oil production expected to increase through the year, I think the risk is that 2022 could be front-end loaded,” he said. “That is, higher prices earlier in the year and lower prices later in the year.”

What happens with the rapidly-spreading Omicron variant of the virus that causes COVID-19 is another wildcard that makes demand forecasting for next year even more difficult. And while De Haan is confident drivers will “eventually at some point next year start to see relief,” Vallance believes a combination of rising carbon taxes and expensive regulations will conspire to keep prices high.

“The price of gasoline and transportation fuels in general is going to go up, even if oil prices stay where they are or go down somewhat, and that is because carbon taxes are going to get higher and more fuel standards are going to take effect, which is going to cost refiners more to produce cleaner fuel,” Vallance said.

“Longer-term, that is what is going to happen,” he said, “so Canadians are going to end up paying more at the pump whether oil prices stay where they are or not.”