With the Bank of Canada today signaling concern over the effect of lower oil prices to the Canadian economy, the decision to cut the central interest rate for the first time in 4 years has sent the Loonie tumbling. At the same time, oil and gasoline are seeing something of a rally on energy markets. The effect of these coinciding events means that beginning this Friday, most Canadian cities are likely to see a minimum pump price increase of 2 or more cents per litre.
GasBuddy notes that over the last 15 weeks Canadians have enjoyed significant savings to their fuel budget with the national average for gasoline today standing at 89.8c/L, down 32.1 cents from the average of 121.9c/L this time last year.
Dan McTeague, senior petroleum analyst with GasBuddy, notes that "because all commodities like oil, gasoline and diesel are priced in U.S. currency, a sharply weakened Loonie, coupled with rising prices on the energy markets, however small, increases fuel costs to Canadians to a much greater extent than what Americans are currently experiencing."
The continued weakness in the Canadian dollar explains why, beyond tax differences, Canadian fuel prices are significantly higher than those in the U.S.
The U.S. average price of gasoline today is $2.04/gallon. Although U.S. fuel prices have declined aggressively in recent months, that trend may end fairly soon, concurrent with recent increases in West Texas Intermediate crude, the benchmark in the U.S. It remains unknown whether crude oil has hit the 'floor' or whether it will slip further. Some investment firms have suggested it could fall to $35/bbl and even $25 per barrel.
McTeague said he expects the Canadian dollar to weaken further and that for the next few weeks motorists could see slightly higher prices despite any modest declines in crude oil.