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Oil analyst predicts 'plateauing' of gas prices heading into summer months

Last Updated Jun 1, 2020 at 5:43 am PDT

(iStock Photo)
Summary

The price of oil -- the main driver of gas prices -- appears to be levelling off

Refinery rebates are also being rolled back, leading to prices inching back to normal

VANCOUVER (NEWS 1130) — Gas prices in Metro Vancouver have seen wild swings recently, dropping below 90 cents a litre and climbing to $1.25 per litre over this past week, but one expert predicts much more stability at the pumps in the weeks ahead.

Werner Antwelier with UBC’s Sauder School of Business says while there are a number of factors involved, the price of oil — the main driver of gas prices — appears to be levelling off.

Oil prices have recovered from their historic below-zero decline in late April, and are at levels where oil companies can keep production levels stable.

“That tells me we that we can expect a plateauing of prices,” Antweiler notes. “This is happening everywhere across Canada, as the prices for crude oil are basically getting back to a more normal level. Now we see that prices are inching back up again but I expect that the crude prices will be flattening out.”

He notes another factor that plays into prices is refinery rebates.

“When they were not running at full capacity they were giving a very large discount to everybody who was buying gasoline from them and they see some of these discounts disappearing,” he says.

“It’s still cheaper than usual but we’re coming back from these very low points we saw a few weeks ago.”

Demand for fuel also plays a part in what drivers pay to fill up their gas tanks.

“We’re still not back to normal driving levels. Everybody has noticed that the volume on the road has increased but it’s not back to the levels we had in February,” he says.

The broad economic impacts of the of COVID-19 pandemic will continue to be felt in the oil and gas sector, even as restrictions ease.

“The prices will remain somewhat depressed because economic activity will remain depressed,” he notes, adding current prices are about 50 cents lower than they were at the same time in 2019.

And while the oil and refinery sectors remain stable, Antweiler does note there’s always the wild-card when it comes to prices — international stability.

“If you have an escalating trade war or other things that depress the world economy that of course will be reflected in crude prices, and that could drive volatility,” he says.

“So, the political issues that are on the horizon for this year are quite tremendous. What’s happening all around the world from the United States, to China, to Europe — all these things will play out in addition to what’s happening with the current pandemic.”