Gasoline Prices: ‘Demand Destruction’ Coming?

Experts can’t determine when — or if — motorists can see a destruction of demand Important at the pump.

Demand annihilation is a sustained decrease in demand for a product due to over-pricing.

In theory, reaching an unsustainable price would serve as a tipping point and ultimately drive fuel prices down, offering some relief to drivers. Analysts say we’re not there yet, even though gasoline prices are hovering around historic highs.

Gasoline prices in Canada are at record highs adjusted for inflation, but I’m still amazed at the high demand we’re seeingsaid Patrick De Haan, head of oil analysis for fuel price tracking service GasBuddy.com.

Gasoline prices have been rising since February, when Russia’s invasion of Ukraine sent shockwaves through international energy markets.

On Thursday, the nationwide average retail price at the pump in Canada was ¢208.5 per liter, up 76 cents from last year’s average of ¢132.2 per liter. The country hit an all-time high of ¢210.8 per liter on June 12, according to GasBuddy.

Although Canada doesn’t have good statistics on consumer fuel consumption, De Haan said gasoline purchases are likely comparable to those in the United States, where federal data shows gasoline demand. n It’s only down about 5-10% since prices started rising earlier this year.

He said that was surprisingly low but it probably had everything to do with the lifting of COVID-19 restrictions.

I would have expected more demand destruction [au Canada] at the $2 per liter mark. »

A quote from Patrick De Haan, Head of Petroleum Analysis at GasBuddy.com.

I think a lot of Canadians want to exit like their American counterparts. I also think more Canadian companies are moving back to a physical office, which could be one reason we’re not seeing things drop more significantly.said De Haan.

According to him, unleaded gasoline prices would have to rise to $2.25 or $2.50 a liter — which is unlikely but could happen if a natural disaster or weather event destroys a major North American refinery this summer — to trigger the level exponentially destruction of demand. Diesel fuel has recently peaked at around $2.50 per liter.

changes minors?

Ian Jack, vice president of public affairs for the Canadian Automobile Association, said any demand destruction that occurs at this stage is likely to be minor. He pointed out that for many Canadians, particularly in small towns and rural areas, the only way to get to work is by car.

People who drive altogether cannot just stop driving. »

A quote from Ian Jack, Vice President of Public Affairs, Canadian Automobile Association

While a small number of Canadians may change their vacation plans due to high gas prices, Jack believes many will be reluctant to do so after spending the past two summers at home due to COVID-19.

Kerosene and air fares have also risen. That said, if you’re planning on going on vacation this summer, you’re not necessarily saving money by not driving and flying instead.he noticed.

Vijay Muralidharan, managing director of R CUBE Economic Consulting in Calgary, is less convinced that consumers can sustain current high prices for much longer. In fact, he believes significant demand destruction is already underway.

$ et y reste un certain temps, il y a destruction de la demande. Donc, cela se produit déjà au Canada”,”text”:”Selon mon analyse, lorsque le prix moyen dépasse 1,80$ et y reste un certain temps, il y a destruction de la demande. Donc, cela se produit déjà au Canada”}}”>According to my analysis, demand destruction occurs when the average price rises above $1.80 and stays there for some time. So this is already happening in Canadahe explained.

In the USA and Canada, demand remains high

The reason pump prices haven’t yet reflected a drop in demand is because demand from US drivers is still high, Mr Muralidharan said. With North American fuel refiners having the option to sell in the Canadian or US markets, fuel prices will remain high as long as demand remains high south of the border.

In fact, the performance of the US economy is that greatest barometer to pay attention to when watching for the first signs of demand destruction in gasoline prices, Muralidharan said.

So far, real disposable incomes in the United States have remained high, but with inflation and the Federal Reserve’s recent rate hikes, it’s entirely possible that consumer spending power in the country is on the verge of collapsing.

Real incomes are not growing as fast as inflation. [Par conséquent] You’ll see some sort of pullback in demand, he said. My prediction is that by the end of July, beginning of August, we will see some kind of recovery in prices [de l’essence].

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