Alberta summer gas prices likely won't surpass last year's $1.90 peak: expert

While gas prices surged to almost $1.90 per litre last summer in the Edmonton area, an industry expert thinks prices will likely remain lower this year as global oil prices stabilize.

A surprise voluntary oil production cut by Saudi Arabia and other Organization of the Petroleum Exporting Countries (OPEC+) announced last weekend raised global crude prices.

While that may sound concerning at first glance to consumers already feeling the inflation squeeze, Albertans will likely benefit as the oil and gas sector will receive a boost of confidence, says Rory Johnston, the founder of Commodity Context and a former bank economist.

"The benefit for Albertan producers is that this is just higher prices, and it's going to be less supply and a little bit more certainty there," he explained.

On Sunday, OPEC+ pledged to reduce oil production by approximately 1.16 million barrels per day starting in May. Saudi Arabia said it would cut output by 500,000 barrels, while Iraq and Kuwait promised to trim 211,000 and 144,000 barrels per production day, respectively.

"Typically, ahead of these meetings, you have a lot of rumour mill and chatter. This was completely out of the blue. It definitely caught me by surprise," Johnston told CTV News Edmonton.

While OPEC+ announced a cut of two million barrels per day last October, Johnston said that was more of a "paper cut" since many countries couldn't produce enough oil at that level anyway.

"Even before this cut, the major oil forecasting agencies like the International Energy Agency were already forecasting tightening supply-demand balances into the second half of this year," Johnston said.

According to Statistics Canada data, the average price at an Edmonton gas station pump peaked at $1.86 per litre in June after hovering in the $1.50 to $1.60 range. That decreased to $1.79 in July and then $1.47 in August.

Johnston said those prices were driven by high oil prices — between $120 to $130 a barrel — and high refining gasoline margins.

Before the COVID-19 pandemic, refining margins for gasoline were between $15 to $20. Last summer, those reached upwards of $60 a barrel, Johnston added.

"Right now, while gasoline margins have increased again, we definitely have them nowhere near as high as they were last summer," he said.

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For Johnston, the OPEC+ production cut will "firm up" confidence in the Canadian oil patch, thereby slightly reducing the risk of job losses or a decrease in production.

"The oil market is still trying to figure out what balance looks like in the post-COVID age. A lot of stuff has changed," the industry analyst added. "The U.S. oil patch and the Shell production has slowed tremendously, and that had been the main thing keeping oil prices low for much of the pre-COVID decade."

"This time last year, Russia had just invaded Ukraine, and people were really earnestly and honestly considering the possibility of $200-plus crude oil," he said. "Fast forward a year, and the very polar opposite has happened, and we've actually seen a halving of oil prices."

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"This makes $100 oil more likely but I think in many cases it makes $130 oil less likely because, by that stage, the market knows that OPEC has some excess ammunition that they can bring back to the market."

The big factor that could change everything is how continued inflationary pressure will impact consumer spending and the airline industry, Johnston said. Others are also waiting to see what effect continued central bank interest rate hikes will have.

"In this market, uncertainty will continue to reign supreme," Johnston said. "[But OPEC+] wouldn't have cut if they were completely confident that those deficits were going to emerge."

With files from CTV News Edmonton's Miriam Valdes-Carletti and Reuters