Rising Gas Prices Force Canadians to Cut Spending as Analysts See Silver Lining

John Hollinrake closely watches his tab tick up at the pump. He's filling his little sedan with gasoline at a Calgary station, but to him, he says it feels like watching another meal slip away.

"I can't afford to eat the food that I want to eat," Hollinrake said.

Hollinrake, who lives on a fixed income in his retirement, said he's taking money out of his food budget to load up his gas tank. The 60-year-old drives a friend to work each day, a 150-kilometre round trip, which costs much more nowadays.

Conflict Drives Global Oil Prices Higher

He's among scores of Canadians who are grappling with a seismic shift in fuel costs, since global oil prices took off when the United States and Israel began their war on Iran.

The conflict has sent fuel prices, including diesel, gasoline, and jet fuel, shooting upward. Much of it is due to blockades at the Strait of Hormuz, a shipping corridor for one-fifth of the world's oil.

"We haven't even seen the beginning yet," Hollinrake predicted. "It's gonna get worse."

Like Hollinrake, who is watching his ideal meal slip away at the gas pump, people across the country are having to make difficult tradeoffs. Eventually, they may cut some spending altogether.

Consumer Cuts Could Stabilize Prices

And with an uncertain outcome in the Middle East, those cuts may be the surest way to bring prices down, analysts say.

"Consumers will make the right choices with their dollars and just reduce consumption," said Susan Bell, a senior vice-president at Rystad Energy. "That starts to help resolve the supply-demand imbalance."

Even with a recent ceasefire, which is shaky at best, the outlook remains grim. Over the weekend, peace talks between Iran and the U.S. ended without a deal. Markets will be focused on tanker traffic through the crucial Strait of Hormuz on Monday after American President Donald Trump threatened to block the strait completely.

U.S. Central Command later said its forces would instead block all ships at Iranian ports and would allow non-Iranian traffic through the strait.

Whatever the outcome, analysts expect it will take months or even years for a full recovery to take hold.

Pressure Ripples Through Economy

For shippers, truckers, retailers and consumers, the pressure of steeper costs rippling through the economy is real.

Zekira Brate misses his family for weeks at a time, hauling truckloads of potatoes from across Canada's sprawling prairies down into the U.S. Brate fills his semi-truck's nearly 200-litre tank with diesel every day or two, and the increased costs are eye-watering.

"You used to fill a tank for $1,000 bucks; now you're at like $1,800," he said.

Murray Mullen, the chair and president of Mullen Group, which owns several logistics companies across Canada, said everyone has had to adapt to higher prices. Mullen said several weeks ago, he and his colleagues peered through a boardroom window, stunned as gas prices shot up mid-meeting.

"There was a gas station right outside, and the price went up by 20 cents a litre as we were sitting there talking," Mullen said.

Trucking companies are tacking on or hiking fuel surcharges, fees they're not thrilled to be charging their customers, according to Mullen. Airlines and rail operators are also among the businesses adding fuel surcharges, on top of an already growing list of extra costs that eventually land on consumers.

Canadian Pacific Kansas City Ltd., one of Canada's largest railways, is poised to add fees on its routes to offset fuel costs. Massive airlines like Air Canada and WestJet Airlines Ltd. are also adding surcharges to ticket prices, making many vacations more expensive.

Still, Mullen said the added fees are necessary for carriers who can't absorb lofty fuel costs into their already thin margins. Fuel accounts for up to 30 per cent of total costs, he said.

"The longer this goes on, the more that the overall economy gets hurt," Mullen said.

Permanent Demand Destruction Possible

Kent Fellows, an economist at the University of Calgary, said anything that requires shipping will be impacted by the conflict, particularly due to the strait's closure.

"It's hard to put a positive spin on this. It's bad, it's probably worse than we think it is right now," Fellows said before the ceasefire. "And, unless something changes, it's going to get even worse."

Some of the cost-savvy choices Canadians make could mean demand for fuel, particularly gasoline, drops for good.

If prices for Brent crude, a major global benchmark for oil, were to hit US$150 a barrel and stay there for a sustained period, it may trigger a permanent loss of demand, according to analysts from TD Securities.

"We see US$150 per barrel as the equilibrium peak where significant demand destruction would likely take hold in the global economy and feed the eventual retreat of prices," the analysts wrote in a note to clients.

Fellows said the crisis has likely already led to some long-term demand destruction, but it's difficult to measure the effects this early on. It's when people start making lifestyle adjustments that demand destruction takes hold, he added.

"The next time I buy a car, maybe I buy an EV, or maybe I buy a four-cylinder instead of an eight-cylinder," Fellows said, noting that enough consumers switching would permanently reduce gasoline demand.

Consumers Feel the Pinch

The thump of a freshly filled fuel tank has become a source of angst for Tyler Harris, who says he spends about $120 per week loading up the tank of his V8 pickup truck.

"I do my best just not to look," Harris, who works long shifts in construction, said. "Because if I look at the price, it upsets me a little bit."

Harris still enjoys the occasional energy drink, but said he's steering clear of costly purchases that weigh on his wallet.

"I try to cut down on mostly fast foods and going out for lunch and stuff like that," Harris said. "That stuff racks up pretty quick."

Prices can't soar forever. Once they reach a certain point, people stop buying. That should bring prices down, but how far remains anyone's guess.

Bell, with Rystad Energy, sees demand destruction as somewhat of a necessary evil in cases of limited supply.

"We need to start seeing some price-related demand destruction," Bell said.

She estimated that over the next couple of months, North America's daily gasoline demand could tumble by the equivalent of 400,000 barrels due to high prices. North America's total demand is around 11 million barrels.

Consumers may cut out discretionary spending on things like weekend getaways and flights, while some people may carpool or ride public transit more frequently, she added.

"Eventually, you will start seeing consumers spending less," Bell said. "Then the freight companies have to respond, because there will be less to ship around, and they will have to cut service."

No Easy Relief in Sight

As supply and demand for fuel continue toward a new equilibrium, almost everyone will pay the price.

"We're not making any extra money; neither are the people supplying the product, and neither is your local retail store," said Tyler Fox, a trucker who lives in Calgary.

"I just try to fill up where it's cheapest," he said. "I've never seen prices this high."

Canada's federal government applies a tax of four cents per litre on diesel and 10 cents per litre on gasoline, but many provinces have their own levies in addition to that. Alberta charges an additional 13 cents per litre for diesel and gasoline. Meanwhile, B.C. charges over 27 cents per litre on both fuels in some jurisdictions.

Some consumers and advocacy groups have urged governments to lift these levies, but Bell said relief in that form might not be the right move.

"In 2022, for example, Canada and the U.S. waived excise taxes on gasoline, and that was to sort of shelter the consumers from the worst impacts," Bell said. "But perhaps when we do need to see the demand destruction, that's not the right thing to do."

Bell said that a certain amount of energy is a human right, but discretionary energy is not.

"Unfortunately, consumers need to bear the cost," she said.

For truckers like Brate, who are out hauling freight to help pay the bills for their families, high fuel prices are a tough pill to swallow, especially with rising grocery bills alongside the cost of keeping his semi's tank full.

"It's very hard to make a living," Brate said. "Especially now."