Pinched at the pump? The culprit may be winter weather

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Monday, November 21, 2016, 9:05 PM - Want a sneak peek at gas prices this season? Simply watch the weather. 

Especially south of the border. 

"Really understand, that whatever price we pay for gasoline is directly related to health and production of U.S. refineries," Dan McTeague, gasoline analyst, told The Weather Network last week. 

McTeague, a former Member of Parliament who is now a petroleum analyst for the fuel-price website GasBuddy.com, provided some sobering insight into just how the gas price is at the mercy of factors beyond Canada’s control. 

"We are price followers, not price leaders."

For example, you can usually expect a slight dip in prices in the fall: Suppliers convert summer gas, which is treated to make it less volatile in higher temperatures, to less expensive winter varieties. By mid-September, demand also falls somewhat once the summer travel season is over.

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But you may have noticed that price drop was delayed this season. McTeague says that’s due to a larger than normal number of refineries undergoing scheduled maintenance. That led to lower production, less gasoline being produced and, due to the rules of economics, higher prices. 

But McTeague says the weather is a crucial factor in gas price volatility, depending on where you live in Canada and where in the U.S. the supply chain is being disrupted. 

"Any type of weather-related incident that does, in fact, affect production or distribution of gasoline, whether it's by pipeline, whether it's by truck, or whether it is a refinery running out of power … all of those have an instantaneous effect on a good number of Canadians," McTeague says. 

Knock-on effects

Residents in British Columbia have been especially affected by this in recent weeks. The province, and the U.S. Pacific Northwest, were slammed by powerful storms with strong winds and torrential rains, some boosted by moisture from the remnants of Typhoon Songda. 

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Though the impact on B.C. ended up being less than expected, the U.S. took a major hit, and that ended up delaying supply barges that usually bring fuel from those areas into the western Canadian market. 

Aside from other factors kicking in, local refineries couldn’t make up the difference in supply to meet demand, and the result was a price hike of eight or nine cents per litre, exceeding $1.30 in some areas. 

"Those are prices we rarely see this time of year, and but they have everything to do with Vancouver [and] Vancouver Island’s dependence on south of the border to get their gasoline," McTeague says. 

People in Ontario and Quebec, which rely on the U.S. northeast for supply, aren’t immune to such hits. In the bitter winter of 2014/15, enduring cold temperatures in early 2015 were too much for refineries to handle, limiting supply and leading to price volatility. 

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"Refineries are like any other machine … they don’t work as well in extreme temperatures, whether too hot or too cold," McTeague says. 

The most extreme weather impact onNorth American fuel prices in recent years was 2008’s Hurricane Ike, which made a direct hit on Texas, the source of much of the oil that ends up refined and pumped as gasoline to Canadian markets.  

"That was good enough in one fell swoop -- I know, because I announced its prediction -- [for] a 12 cent a litre increase," McTeague says. 

Though McTeague says there are other factors in Canada’s fuel prices, like currency fluctuations and a lack of Canadian refineries, weather hits in the U.S. can result in the biggest movement on the dial. 

"The relationship between weather and gasoline and petroleum prices … are far more synchronous than people know," McTeague says. "Yes, we have factors like taxation, we have factors like lack of competition and the Canadian exchange rate, but quite often, and more often than not, these large price spikes we see, which tend to be very unusual, are more often than not attributed to serious weather events."