Gasoline prices spiked sharply across eastern Canada on Wednesday, and the oil industry is blaming a hurricane that forced refinery closures in the U.S. Gulf Coast two weeks ago.
If sustained, the higher pump prices would batter consumer confidence, which is already fragile as a result of high consumer debt loads and a sluggish recovery, Bank of Montreal economist Douglas Porter said.
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Motorists in Montreal were stunned when prices jumped overnight from $1.40 a litre to $1.53, before easing back to about $1.50. Ontario drivers also saw big jumps, though not as dramatic as those in Quebec. Pump prices in Toronto were up 4-cents to $1.37 a litre.
"From what we are seeing in the market, it seems the hurricane in the U.S. is responsible" for the sudden price hike, said Bill Simpkins, spokesman with the Canadian Petroleum Products Institute, which represents the refining and retail side of the industry.
Hurricane Isaac made landfall in Louisiana on August 29, causing flooding and power losses and the closure of seven refineries that supply gasoline and other product to the eastern U.S. Those refineries are only now getting back to full operation.
"A number of refineries closed on the Gulf Coast and that caused the product market to tighten significantly," Mr. Simpkins said. However, he could offer no explanation for the dramatic runup in Montreal, except to suggest prices had been unreasonably low prior to the move.
Gasoline prices in eastern North America are heavily influenced by the New York Mercantile Exchange's quote for imports into the New York harbour. Those wholesale prices have been climbing steadily since July, when crude oil costs began to rise over concerns about lower Iranian exports due to sanctions. The pace of the increase quickened in September, with the disruption caused by Isaac.
"The supply of petroleum products from the U.S. gulf coast, which has a big impact on the U.S. northeast coast, is really the culprit here," said Michael Ervin, of Kent Marketing Ltd. "It's the reason we're seeing higher wholesale prices in the region, both in Canada and the United States."
But crude prices have been relatively stable in the last month, with international prices hovering around $115 (U.S.) a barrel, and the benchmark West Texas Intermediate trading in the mid $90 range.
Mr. Porter said he doesn't see any reason for the price spike overnight Wednesday. And he said the increase could have a significant impact on the broader economy.
"Most of the real episodes for erosion of consumer confidence in the last 10 years have been related to swings in gasoline prices," he said. "Usually, there is a fairly strong relationship between consumer confidence and spending. But I suspect that, based on what crude prices are doing, this is not going to last that long."
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