SASKATCHEWAN — Saskatchewan drivers could soon see relief at the pumps as global oil prices drop following a tentative agreement in the Middle East. The United States and Iran have agreed in principle to a deal to reopen the Strait of Hormuz, which has eased supply concerns and initiated a decline in the cost of crude oil.
At market open, June 16, West Texas Intermediate crude oil was priced at $81.53 per barrel. However, these prices represent a significant decline compared to last month, when WTI crude closed at $108.99 per barrel on May 15.
Patrick De Haan, head of petroleum analysis with GasBuddy, says Saskatchewan's average gasoline price could drop by 15 cents a litre due to the recent decline in the price of oil. He cautions that this potential savings is highly dependent on international negotiations.
"The risks are that if a deal does not get signed or if it falls apart, oil and gasoline, diesel and fuel prices certainly could react again going higher," De Haan said.
Despite the uncertainty, De Haan believes the current outlook is positive for motorists.
"For now, though, the news is optimistic and good," he said. "So long as this deal gets signed later this week, it could pave the way for gasoline prices to slowly decline over the rest of the summer."
While global oil prices declined almost 10 per cent in just 12 hours, gas prices at the pumps have seen a much slower drop. De Haan notes the delay is a simple matter of logistics and inventory.
"Gas stations probably haven't priced fuel yet," he said. "So there is going to take some time for stations to not only buy the cheaper fuel, but sell through the more expensive fuel that they have in their underground storage tanks."
According to De Haan, consumers should start noticing a difference soon.
"We will likely, in the next 24 hours, start to see stations lowering prices because of the big drop in the last 24 hours in the price of oil," he said. However, De Haan adds that it may take a couple of weeks to fully pass along the decreases seen over the last day.
Looking at the broader picture, De Haan noted it will take a considerable amount of time for gasoline prices to return to their pre-war levels. He explains that global oil inventories and supplies have been severely impacted by the conflict.
"We've lost out on 1.5 billion barrels of oil that would otherwise flow through the strait," De Haan said.
When asked about the impact of previous federal excise tax suspensions on gasoline, de Haan explains that removing a tax does not freeze the price of oil. He says global supply and demand balances can still shift and drive prices higher, occasionally offsetting any savings consumers might expect at the pump.
Regarding how local retailers set their prices, De Haan clarifies that gas stations are not analyzing consumer breaking points.
"Stations don't look at the balance of supply and demand," De Haan said. "They look at a price, they mark it up just like a car dealership would." He noted that stations are simply trying to cover their business expenses and keep their doors open by reselling fuel.
De Haan says retailers will adjust their prices as the market fluctuates, and they actually prefer a downward trend.
"In fact, gas stations like when prices are falling much more than they like when prices are going up, because when prices are going up, their margins are under considerable pressure," he said. "When prices go down is when stations generally do better."
