Analyst explains why gas prices don't drop as fast as price of crude oil

A Canadian analyst says we’re unlikely to see much relief at the gas pump even as oil prices stay stubbornly low.
 
While the price of crude surged briefly over tension between Saudi Arabia and Iran, Enpro’s Roger McKnight said that in the long run, the two countries are both likely to keep the taps open.
 
McKnight pointed out that wtih sanctions easing after its nuclear deal, Iran is set to add 500,000 barrels a day of production, with a further 500,000 barrels expected down the line.
 
This adds to a glut of crude already on the market as Saudi Arabia has kept production high in an effort to drive out higher-cost producers, like North America’s shale and oilsands industries.
 
McKnight said the U.S. decision to allow oil exports after a decades-long ban is also adding to the oversupply.
 
And yet, even as all these factors push crude prices down, McKnight said Canadians find themselves punished at the pumps.
 
 “Now the consumer may think ‘this is just wonderful because prices are going to be going down,’ but they’re not going down as fast as they see them happening in the paper,” he said.
 
McKnight explained that the steep decline in the value of the loonie is a big part of what’s behind the disconnect between the price we see for a barrel of crude and what we pay to fill up our vehicles.
 
“All crude oil and gasoline and diesel is bought and paid for in U.S. dollars, throughout the world,” he said, adding that this means a roughly $36 (US) barrel of crude costs closer to $50 Canadian for a refiner to buy from a producer. 
 
McKnight suggested another thing keeping Canadian retail gas prices up is profit-taking by larger companies that own oil extraction, refining and retail operations.
 
“(They) are suffering at the upstream end, so exploration and production. They’re really subsidizing that loss of the upstream by really cranking up the refining margins or the prices you see at the pump,” he said.
 
McKnight said he wasn’t very optimistic about a turnaround in the price of crude any time soon.