There’s a famous saying that “the cure for high prices is high prices”, but when it comes to fuel, that’s not the case.
Experts cannot determine when – or even if – drivers will see a deterioration of demand important to the pump.
A breakdown in demand is a continuous decrease in demand for a product due to extremely high prices.
In theory, reaching an unsustainable price would serve as a tipping point and ultimately lower fuel prices, offering little comfort to drivers. But analysts say we’re not there yet, even as fuel prices are hovering at historic highs.
Fuel prices in Canada are at their highest adjusted for inflation. But I continue to be amazed at the high level of demand we seesaid Patrick De Haan, head of oil analysis for gasoline price tracking service GasBuddy.com.
Fuel prices have been rising since February, as Russia’s invasion of Ukraine sent shockwaves through international energy markets.
On Thursday, the national average retail pump price in Canada was 208.5 ¢ per liter, 76 cents higher than last year’s average of 132.2 ¢ per liter. The country reached an all-time high of 210.8 ¢ per liter on June 12, according to GasBuddy.
Although Canada does not have good statistics on consumer fuel consumption, De Haan said fuel purchases are likely to be comparable to the United States, where federal data shows fuel demand has just dropped. of approximately 5-10% since prices began to rise earlier this year. .
He said that was surprisingly low, but it was likely related to the removal of restrictions on COVID-19.
” I expect to see more demand deterioration [au Canada] at the $ 2 per liter mark. “
But I think a lot of Canadians, like their American counterparts, want to come out. I also think there are more companies in Canada going back to a physical office, and that may be why we don’t see things falling any bigger.said De Haan.
He added that he believes prices need to rise to $ 2.25 or $ 2.50 per liter for unleaded fuel – which is unlikely, but could happen if a natural disaster or a weather event destroys a major refinery in North America. this summer-to trigger levels. exponential deterioration of demand. Diesel fuel has recently risen to approximately $ 2.50 per liter.
Changes minors?
Ian Jack, vice-president of public affairs for the Canadian Automobile Association, said any demand breakdown that occurs at this stage is likely to be small. He pointed out that for many Canadians, especially in small towns and rural areas, the car is the only way to get to work.
” People who drive, on the whole, can’t stop driving. “
While a small number of Canadians may change their summer vacation plans due to high gas prices, Jack believes many will be hesitant to do so after spending the past two tags. -day stay at home due to COVID-19.
Fares on kerosene and air also went up. I mean, if you’re thinking of taking a summer vacation, I’m not sure if deciding not to drive and fly instead will save you money.he says.
Vijay Muralidharan, managing director of R CUBE Economic Consulting in Calgary, is less confident, however, that the current high price can be maintained by consumers for a long time. In fact, he believes that significant breakdown of demand is already underway.
According to my analysis, when the average price exceeds $ 1.80 and stays there for a while, there is a breakdown in demand. So this is happening in Canadadid he declare.
Demand is still high in the United States and Canada
The reason why pump prices there have not yet shown a reduction in demand is because demand from US drivers is still very high, Muralidharan said. Because fuel refiners in North America have the option to sell in Canadian or U.S. markets, as long as demand remains high south of the border, fuel prices in that country will remain high.
In fact, the performance of the US economy is the largest barometer to pay attention when monitoring the first signs of deteriorating demand in fuel prices, Muralidharan said.
So far, he said, real disposable incomes in the United States remain high, but inflation and recent Federal Reserve interest rate hikes are likely to bring down power consumer buying in this country.
Real income does not grow as fast as inflation [par conséquent] you will see some kind of decrease in demanddid he declare. My guess is that at the end of July, beginning of August, we will see some kind of break in prices [de l’essence].
Source: Radio-Canada
