Canadian heavy oil is in very high demand.
Big demand for diesel
Susan Bell, oil analyst at IHS Markit, expects gas prices to rise by 10 cents from now to the end of summer as a gasoline inventory glut in the market starts to ease, and crude oil prices head higher, in part due to demand for diesel fuel.
Airline ticket prices could rise because of obscure new fuel rule
The International Maritime Organization (IMO) is introducing a sulphur limit rule for 2020, known as IMO 2020, which will decrease the amount of sulphur allowed in the fuel from 3.5 per cent to 0.5 per cent. This will affect large ships that use low grade fuel, which is considered the bottom of the barrel, because of its air-polluting qualities. In order to comply, many ships will likely have to switch to diesel, pushing up demand for heavy crude oil, which is used to make diesel.
"International factors such as the International Maritime Organization's global bunker fuel oil specification change will require refiners to increase crude oil runs to meet strong diesel demand," Bell said.
"This, along with crude oil supply challenges that result from U.S. sanctions against Iran and Venezuela, will support crude oil price increases. Gasoline prices will respond in kind with the increase in crude oil prices."
McTeague said a more-than-six-cents-a-litre jump in the price of diesel "will pretty much affect the price of everything."
"It has direct and indirect costs, and I think it's the indirect ones that we really haven't calculated," McTeague said. "But, I do get nervous when I see that food prices, the basket of goods that make up grocery prices have skyrocketed this year compared to last year, much of it driven by fuel."
He said many people have already made the switch to smaller cars, but this kind of price rise may necessitate new ways to economize.
"Most people have moved to more efficient vehicles, but is there room for more efficiencies? For sure."
The price of benchmark U.S. crude oil — West Texas Intermediate (WTI) — has surged nearly 47 per cent since hitting a one-year low in December, now trading around $62 US a barrel. Meanwhile, the price of Western Canadian Select (WCS) has quadrupled — jumping more than 300 per cent to around $54 US — since hitting a yearly low in November.
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