Like it or not: Fossil fuels are moving markets this month. Gas and Oil prices are both high and rising.
Canada is only the latest country to be affected by rising oil prices, and consequently higher gasoline prices at the pump. This article is a look behind the scenes at how this industry works, and a reminder on how your are affected.
How does Gasoline work in Canada?
In Canada, prices are most evident to the average person when they go to fill up their car. Most cars in Canada are some variety of the internal combustion engine, and they mainly use gasoline.
Where does Gasoline come from?
Gasoline is derived from crude oil. The process of extracting gasoline from crude oil is called “refining”, and it is done in “refineries”.
Crude oil is a black, liquid substance which exists deep under the earth. It is taken from the earth in a process called “drilling”. Another word for crude oil is petroleum.
How does Gasoline get to a Gas Station in Canada?
As you already know from above, gasoline is derived from crude oil. Thus, gasoline prices are increasing as the price of crude oil increases. Of course, the price of gasoline is not solely determined by the price of oil, but it is a major factor.
How do Rising Crude Oil Prices Affect Canadian Companies?
The below are some examples of the effects of oil prices ceteris paribus (all else being equal).
Oil Drillers ✅
The most immediate impact of high oil price will be on those companies which drill for crude oil in the oil sands. This includes companies such as Enbridge (ENB.TO), Suncor (SU.TO), Cenovus (CVE.TO), and Canadian Natural Resources (CNQ.TO). Higher crude oil prices are good for these companies. They can sell their product (crude oil) for more money, leading to higher profit.
Oil Infrastructure ✅
Companies such as Enerflex (EFX.TO; Note I am a beneficial owner) and Enbridge (ENB.TO) stand to benefit from increased oil prices. Increased oil prices lead to more spending on infrastructure, leading to more profits.
Airlines ❌
The biggest airline in Canada is Air Canada (AC.TO), one of it’s affiliates is Chorus Aviation (CHR.TO).
High oil prices are bad news for airlines. That is because jet fuel (used in airplanes), like gasoline, is derived from crude oil. Higher crude oil prices mean greater expenses, leading to lower profit.
How do Rising Oil Prices impact You?
Pay More for Gasoline & Natural Gas❌
This one speaks for itself. Gasoline is currently the largest cause of year/year inflation in Canada.
Higher Canadian Dollar? ✅
The Canadian Dollar is largely thought to follow the oil price. If the dollar should increase, it would make foreign products & services (including travel) more affordable and make new foreign investments cheaper. I highly recommend using the Norbert’s gambit for exchanging CAD/USD.
There you go, you are now caught up on the big changes being made by high oil prices. Use this knowledge wisely my friends!
