Lower pump prices unlikely to linger, UBC prof says
Lower gas prices from a major drop in oil prices linked to a struggle for market share among the globe’s major producers is good “for now” for Lower Mainland motorists.
But don’t get used to it, says University of B.C. Sauder School of Business Prof. Werner Antweiler, as gasoline prices aren’t likely to stay at decreased levels.
On Monday, oil prices made their biggest one-day drop, nearly 25 per cent for global benchmark Brent and West Texas intermediate, since the Gulf War in 1991.
While prices rebounded partly Tuesday, regaining as much as nine per cent, gas prices in the Lower Mainland, among the highest in Canada, dropped as much as 10 cents or more.
“For now, it’s good for consumers as the lower oil prices are passed through,” said Antweiler. “How long it will last — I don’t know.”
Ultimately Saudi Arabia, the leading member of OPEC, is trying to regain market share, market control and ultimately raise prices, which is why gas consumers shouldn’t count on lower prices lasting, said Antweiler.
OPEC, the Organization of Petroleum Exporting Countries, controls about 44 per cent of global production and 81 per cent of proven oil reserves. Other countries in the organization include those from Africa and South America, as well as the Middle East. Indonesia is also a member. OPEC and Russia’s target is the U.S., which has re-emerged as a major oil producer in the past decade, using so-called fracking to access shale-gas oil.
The collapse in oil prices was caused by a price war between Saudi Arabia and Russia, and exacerbated by concerns over the coronavirus’s slowing effect on the economy and dampening effect on demand, including potentially for fuel.
OPEC had wanted its members and Russia, which is the No. 3 oil producer in the world, to increase production cuts, but Russia refused. It means that OPEC and Russia can produce freely by April, which both have said they will do.
Said Antweiler: “The whole object is to bump up prices by dumping oil now.
“People should not get their hopes up for a gasoline price decrease over a prolonged period of time.”
Antweiler said he is also concerned the recent volatility in prices sends the wrong signal to drivers who might have an idea that lower prices are here to stay and will take that into consideration when buying a vehicle, a gas guzzler versus a hybrid, for example.
He said he expects gas prices in the Lower Mainland over the longer term to be in the $1.50-to-$1.70-per-litre range.