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Insights & advice

Why are gas prices so high in Canada?

April 2022 – 15 min read

Key takeaways

  • Increasing demand for gasoline and decreases in world oil supplies are largely responsible for higher gas prices

  • Higher gas prices will likely stay at least through the summer, and possibly the rest of the year

  • There are strategies that can help you use less gas

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Why Canadian gas prices are so high

There are many reasons the price of gasoline is rising so quickly. It’s not just 1 thing but several issues have happened at the same time. However, it really all boils down to the economics of supply and demand.

Russia’s invasion of Ukraine

Many countries have placed economic sanctions on Russia for invading Ukraine. One of these sanctions is to no longer buy crude oil from Russia, normally a large exporter of the product. This decreases the supply of oil on a nervous world market which results in higher oil prices and once it's refined, gasoline and diesel.

The lasting effects of the pandemic

According to the National PostOpens a new website in a new window - Opens in a new window , during the 2 years of the pandemic, world economies slowed and their demand for oil fell drastically, oil companies stopped drilling for new oil supplies, and slowed or stopped some refineries. 

With countries planning for life after the pandemic, and economic activity starting to normalize, these same oil companies are having a tough time ramping up refining and drilling to keep up with demand. Suddenly, people are driving to their workplaces again. They’re travelling by jet and cruise ship again. But it takes time to drill new oil wells and restart refineries, so that lag time hurts supply at the same time demand is increasing. The effect is a rise in gas prices. 

Another effect of the pandemic has been disrupted supply chains. This means it’s more expensive to ship everything, including oil. The result has been general price inflation, which has also contributed to rising gas prices.

OPEC

According to CNNOpens a new website in a new window - Opens in a new window , during the pandemic, The Organization of the Petroleum Exporting Countries (OPEC) cut oil production to keep oil prices at a certain level. As demand has increased, they have not increased production to keep pace, which increases their profits, and the price of oil.

When will gas prices go down?

For the price of oil and gas to do down, supply and demand must be more balanced. Here are some ways that could happen:

Supply increases because:

  • The war in Ukraine could end and countries begin buying Russian oil again
  • OPEC increases their oil production
  • Other oil producers increase production

Demand decreases because:

  • People decide to drive less
  • Society embraces greener energy solutions that don’t involve oil

In the short term, as long as the war continues, we can expect that prices will stay high. As the post-pandemic economy continues to ramp-up, demand for oil will continue to increase. Which will likely keep prices high.

How can you offset high gas prices?

If you’re looking for ways to take use less gas and ease the sting on your wallet, you could:

  • Walk or cycle more
  • Take public transit
  • Carpool
  • Keep your vehicle’s engine maintenance up to date, properly inflate tires, and remove any unnecessary weight
  • Drive slower, accelerate and decelerate smoothly, and limit idling
  • Buy gas on Monday to Thursday when prices are often a little lower
  • Switch to a more fuel-efficient, hybrid or electric vehicle

How higher gas prices may affect your investments

Some experts are predicting that rising oil prices could lead to a global recession. That’s because every previous recession since World War II was preceded by a sharp jump in oil prices – in 1973, 1979, 1990 and 2007. 

Recessions often mean volatile stock markets, which could mean some ups and downs for your investments. 

However, if we use history as a guide, we shouldn’t have knee-jerk reactions to these types of events. Markets may have declined in response to crises such as this in the past, but recoveries happen quickly too. The trick is to stay the course, stick to your long-term goals and don’t overreact.

The information provided is based on current laws, regulations and other rules applicable to Canadian residents. It is accurate to the best of our knowledge as of the date of publication. Rules and their interpretation may change, affecting the accuracy of the information. The information provided is general in nature, and should not be relied upon as a substitute for advice in any specific situation. For specific situations, advice should be obtained from the appropriate legal, accounting, tax or other professional advisors.