Gasoline prices in Canada are expected to remain elevated in the near term as global supply constraints continue to exert upward pressure, according to market analysts and officials. Despite government efforts to mitigate costs through tax relief, factors such as damaged refining capacity and geopolitical tensions persistently drive wholesale fuel prices higher.
Bank of Canada Governor Tiff Macklem highlighted the impact of global disruptions at an event in Halifax on September 21, noting that crude oil prices underpinning gasoline currently trade at levels roughly US$40 per barrel above recent averages. He cited the ongoing conflict in Ukraine and interruptions to tanker traffic in the Strait of Hormuz caused by hostilities involving Iran as key drivers for the elevated prices.
The crude oil benchmark Brent has risen approximately 39 percent since late February, coinciding with military actions by the United States and Israel against Iran and Iran’s subsequent restrictions on oil shipments from the Persian Gulf. Compounding concerns, former U.S. President Donald Trump threatened to ban diesel exports from the United States, a move that could exacerbate supply shortages, though he later appeared to retreat from that stance.
In response to the heightened costs, the Group of Seven (G7) nations announced a coordinated release of 100 million barrels of oil, prioritizing diesel, to ease pressure on fuel prices. This announcement resulted in a brief dip in Brent crude prices, which hovered around US$102 per barrel by Friday afternoon.
At Canadian fuel stations, prices continue to vary regionally. Unleaded gasoline averaged $1.81 per litre nationally on Friday, with lower rates in Alberta at about $1.56 per litre and higher prices in Newfoundland approaching $2.16 per litre, according to data from Kalibrate Technologies and GasBuddy.
Although Canada maintains sufficient crude oil supply and refining infrastructure to meet domestic demand, experts warn the country remains vulnerable to global market dynamics. Rory Johnston, founder of Commodity Context, stressed that Canada’s fuel costs are influenced by worldwide conditions rather than domestic shortages.
The federal government has extended a temporary suspension of the fuel excise tax on gasoline through January 31, and Alberta has paused its provincial gas tax until the end of 2026. These measures provide some relief but do not affect the underlying global price drivers.
Industry analysts also point to reduced refining capacity as a significant factor. Jim Mitchell, director of oil trading analytics at Wood Mackenzie, emphasized that crude prices account for about half of the retail gasoline price, with refining bottlenecks accounting for the rest. Disruptions to Russian refineries resulting from repeated drone attacks amid the Ukrainian conflict have severely curtailed refinery output, leading Russia to import refined fuels for the first time in decades.
Additionally, refining output in the Persian Gulf region has declined by roughly one million barrels per day since the onset of tensions involving Iran. While the United States has made some gains in refining capacity, overall global distillate supplies remain tight.
The ongoing conflict in the Middle East continues to affect oil flow, with countries like Japan and China facing challenges obtaining crude oil from traditional suppliers such as Saudi Arabia and Kuwait. High shipping costs further complicate supply chains.
Even if hostilities were to cease promptly, experts suggest it would take at least a year to restore global refining capacity to previous levels. Damaged infrastructure, particularly in Russia, requires extensive repairs, and operating refineries are running at maximum capacity, leaving little room for maintenance without impacting output.
Johnston cautioned that attempts to restrict fuel exports, similar to proposals in the United States, could ultimately cause global fuel prices to spike dramatically. Meanwhile, Canadian leadership appears limited in its ability to influence prices beyond tax adjustments without risking negative consequences from trade limitations.