It’s been a long wait for farmers and other buyers, but diesel prices are finally lower than gasoline in Western Canada.
The bargains might not last long.
Using Red Deer as an example, diesel was selling for 97.2 cents per litre at the pump in the first week of August compared to $1.05 for gasoline, according to MJ Ervin & Associates, which conducts a weekly survey of fuel prices in about 60 Canadian cities.
Across most of Canada, diesel sold at a premium to gasoline from September 2013 to June of 2015. At times, particularly in winter, diesel was 20 to 25 cents per litre higher than gasoline.
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The unusually cold winter in 2013-14 drove up heating oil demand, pushing diesel prices higher in the eastern United States.
But diesel prices didn’t fall when the winter ended. They stayed higher than gasoline during the summer of 2014.
Spencer Knipping, an Ontario energy ministry petroleum analyst, said the shale oil exploration boom in North Dakota and other parts of the U.S. contributed to higher diesel demand and prices. The petroleum industry relies heavily on diesel fuel and demand peaks when exploration increases.
As well, the economy was relatively robust at that time. When the economy is strong, more trucks are on the road hauling goods, driving up diesel demand.
John Kiemele, vice president, chief operating officer and senior analyst with En-Pro International, an information and risk management service for energy commodities, said diesel prices won’t stay below gasoline for long.
Gasoline prices rise in summer because North Americans drive more from June to September. Gasoline is relatively high now because petroleum companies are making profits from refined products.
“The suppliers that have (crude) production as well as refineries, they’re not making anything on the production right now so they’ve increased the refining margins significantly,” Kiemele said from his office in Oshawa, Ont.
In the fall, refineries switch some production to diesel to ramp up for the heating oil season. Once that happens, companies will increase refining margins on diesel to generate profits, Kiemele said.
“If the price of crude stays as low as it is, you’ll see the refining margins on diesel jump… and gasoline should start to taper off because there won’t be demand for it,” he said. “So I think you’re going to see the two prices switch, where diesel will be much higher than the price of gasoline come the fall.”
Kiemele said the weak loonie is also driving up prices at the pump in Canada.
With crude oil below $50 a barrel, most Canadians would conclude that gasoline and diesel prices should be lower.
Kiemele said petroleum products are bought and sold with U.S. currency, so Canadians buy wholesale gasoline and diesel with a weak loonie.
“Every time the dollar drops, we pay more for diesel in Canada,” he said.
“If the dollar is high we benefit from a lower acquisition price and if it’s low we pay more…. (Right now) we have higher refining margins and we have the huge hit with the dollar.”
