Canadians already hit with gas price shock could soon be paying even more at the pumps due to supply problems and the possibility of conflict in the Middle East, the Bank of Montreal says.
Gas prices across Canada jumped from an average of $1.20 in January to around $1.40 this week. That was the average pump price in Toronto this week, and in Montreal prices are hovering around $1.47. They are now 8 per cent higher than they were at this time last year, even though oil prices are slightly lower than they were in April of 2011.
The risk of gas prices hitting $1.60 per litre are “not insignificant,” BMO Capital Markets senior economist Sal Gualtieri wrote in a note Thursday.
"Although crude oil prices are expected to hover near $100 a barrel in the year ahead, the risk of a near-term spike is elevated due to potential supply disruptions," he wrote.
At the same time, oil speculators -- investors who buy oil in order to sell it at a higher price later -- are driving up oil prices beyond what the market would normally sustain.
Oil trading analyst Jim Ritterbusch told the Globe and Mail there is a near-record number of speculative contracts on the oil market right now, who are trying to cash in on supply problems caused by struggling U.S. refineries.
Chief among these is a Sunoco refinery in Philadelphia that is faltering under lagging demand in the eastern U.S. and foreign competition, and can’t find a buyer.
“The Sunoco situation is significant and the market has priced in a closure of that facility by July,” Ritterbusch told the Globe. “This is a real sweet spot in terms of speculative interest in the gasoline market.”
Then there is the problem of the Middle East. If open conflict between Iran and the U.S. or Israel were to break out, and Iran blockaded the Strait of Hormuz, as it has threatened, oil prices could spike to crisis levels.
"The Iranian situation could disrupt oil shipments in the Strait of Hormuz, a key route for one-fifth of globally traded oil,” BMO’s Gualtieri wrote. “This would likely push crude prices back to 2008's high of $147 a barrel."
At those price levels, it’s unlikely Canada could avoid an economic slowdown.
Gas prices across Canada jumped from an average of $1.20 in January to around $1.40 this week. That was the average pump price in Toronto this week, and in Montreal prices are hovering around $1.47. They are now 8 per cent higher than they were at this time last year, even though oil prices are slightly lower than they were in April of 2011.
The risk of gas prices hitting $1.60 per litre are “not insignificant,” BMO Capital Markets senior economist Sal Gualtieri wrote in a note Thursday.
"Although crude oil prices are expected to hover near $100 a barrel in the year ahead, the risk of a near-term spike is elevated due to potential supply disruptions," he wrote.
At the same time, oil speculators -- investors who buy oil in order to sell it at a higher price later -- are driving up oil prices beyond what the market would normally sustain.
Oil trading analyst Jim Ritterbusch told the Globe and Mail there is a near-record number of speculative contracts on the oil market right now, who are trying to cash in on supply problems caused by struggling U.S. refineries.
Chief among these is a Sunoco refinery in Philadelphia that is faltering under lagging demand in the eastern U.S. and foreign competition, and can’t find a buyer.
“The Sunoco situation is significant and the market has priced in a closure of that facility by July,” Ritterbusch told the Globe. “This is a real sweet spot in terms of speculative interest in the gasoline market.”
"The Iranian situation could disrupt oil shipments in the Strait of Hormuz, a key route for one-fifth of globally traded oil,” BMO’s Gualtieri wrote. “This would likely push crude prices back to 2008's high of $147 a barrel."
At those price levels, it’s unlikely Canada could avoid an economic slowdown.
