How gas and diesel prices are hitting Islanders, and why they're so high

Prince Edward Islanders may be starting to thinkabout leaving their vehicles in the driveway more often, but they won't be able to entirely avoid the impact of high prices for gas and diesel.

Prices have been breaking records throughout the spring. Gas, at $2.108, is sitting at a record high. Diesel, at $2.424, is down from a record high at the end of April but still 90 per cent higher than it was a year ago.

Mike Cassidy, owner of T3 Transit, said he is seeing signs that Islanders are making the decision to let someone else do the driving for them. March and April were the busiest months ever for the transit service in Charlottetown.

Rural routes are getting busier too. Cassidy told Island Morning the company witnessed a first on Tuesday.

"Our Charlottetown to Summerside rural transit bus, leaving Charlottetown at 6:25 in the morning, for the first time since 2008, sold out in Hunter River," Cassidysaid.

Fortunately, since rural routes usually have people driving to the bus stop, someone stepped up to drive the extra passengers into Summerside, hesaid.

The further people have to travel on a commute, said Cassidy, the more they can save by taking a bus.

With changes happening quickly the company is doing what it can to keep up.

"We are trying to determine how to adjust our business model," said Cassidy.

"Extra units, bigger units, but definitely we are seeing the behaviour change."

Diesel driving general inflation

While Islanders can save some money by taking the bus, or choosing to walk or cycle, there will be some extra costs they can't escape.

Inflation is high across Canada, and not just directly for fuel. The increase in the consumer price index excluding fuel is about the same for both Canada and P.E.I., around five and a half per cent. Part of what is driving that increase is the cost of shipping.

Scott Annear, co-owner and general manager of Morley Annear, a trucking company based in Brudenell in eastern P.E.I., said since early December the rates he is charging have almost doubled.

And while that covers the higher cost of diesel, there are problems it doesn't solve.

"It's been quite a struggle. It's caused more trouble than just pricing," said Annear.

"It's put a real cash flow crunch on right now."

In general more money is flowing through the company. More money from customers, more money to their fuel supplier. Customers are given 30 days to pay, but the fuel bill is paid weekly. It's a difficult dance, he said, to ensure cash is available.

"If somebody takes over 30 days to pay me it's a real struggle," he said.

"I'm caught. It doesn't really matter what the price of diesel is. My wheels have to keep turning. I've just got to try and hopefully make sure that I'm adjusting enough."

Trucking driving inflation

Morley Annear specializes in food shipments, so Annear doesn't expect his volume of business will change as people adjust to higher prices. But he said eventually consumers of all kinds of goods willnotice the impact of the higher prices he is having to charge.

"If my price goes up on hauling a load of potatoes to Loblaws then that price of potatoes is going to be up as well," he said.

"Everybody's food prices are tied in with trucking, transportation costs."

That goes for clothing, furniture and electronics as well, items he suspects may well see decreased demand.

Costs higher than expected

Annear has been watching the price of diesel for years, and the high cost of it now does not entirely make sense to him. There is a mismatch between diesel prices and world prices for a barrel of crude oil.

"The barrel price isn't all that high compared to what the price of fuel is," he said.

"I don't know who it is, but somebody somewhere is making a lot of money off these fuel prices."

Ian Lee, a professor at the Sprott School of Business at Carleton University in Ottawa, said Annear's suspicions are correct.

"Many Canadians, probably people around the world, think that these high prices, these incredibly high prices, unprecedented high prices, are due to that criminal invasion of Ukraine by Russia," said Lee.

And that is part of it. Russia is the world's third-largest producer of oil and certainly the war is disrupting supply.

"But that is not the problem right now in North America. The problem is a shortage of refinery capacity across the U.S. and Canada."

Refining capacity in North America is at its lowest level in decades, said Lee. Because refining capacity is low they cannot keep up with demand for gas and diesel, and that is allowing for higher margins at refineries.

It's those margins, more than anything, that are driving up the price at the pump. Effectively diesel is being priced as if the world oil price was $175 and gas as if it was $155, when it is in fact $110.

Yes, it is the pandemic

Lee said three factors have brought the North American gas and diesel supply to this point.

When demand collapsed with COVID-19 lockdowns, refineries were shut down.

Government estimates of economic recovery were off the mark, and demand has increased more than expected, so refineries have been to slow to reopen.

Some older refineries are permanently closed because they can't meet current environmental standards.

Once again COVID-19 rears its ugly head, the cause of two of the three reasons for low refinery capacity. But it's a heyday for those refineries that are operating.

"Refineries are making enormous amounts of money," said Lee.

Prices have probably peaked, because demand is likely to fall, he said. But they are still likely to stay above $2 through the summer. Forecasts are for it to drop below that in the autumn when the summer driving season ends.

An opportunity

Just as summer is coming with the hopes the pandemic might finally end, along with the associated travel restrictions, along come high gas prices to keep us home.

"It's ironic," said Prof. Ahsan Habib, of the School of Planning at Dalhousie University.

"We just came out from a pandemic which restricted our mobility, so we have a desire to go out."

But it is also an opportunity, said Habib. The move to transit, to more efficient vehicles, to active transportation, are important factors in fighting climate change. There is, however, no guarantee this behaviour will last, he said.

"We hope it lasts longer but from the previous studies some of them in California, some of ours a couple of years ago as soon as the short-term shock disappears people go back to their cars," said Habib.

He hopes governments will take this opportunity to increase support for transit and active transportation, in an effort to make these changes in behaviour permanent this time.