Winnipeg Free Press - PRINT EDITION

Iraq conflict brings pump jump

Prices rising in city as Mideast nation hurtles toward civil war

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Unrest in Iraq is driving up gasoline prices in Winnipeg and across the country.

Jason Toews, the co-founder of Minneapolis-based Gasbuddy.com, said gas prices have spiked on average by about eight cents per litre between Tuesday and Friday in Winnipeg.

Clashes between Sunni and Shiite Muslims in Iraq Friday threatened to explode into full-blown civil war, ripping the country into three divisions -- Sunni, Shiite and Kurdish.

"There is no market basis to see gas prices going up right now," said Toews, a Regina native. "One of the things that happens where there is political instability with oil-producing countries like Iraq is that the market gets jittery. Traders think, 'Who knows what will happen? I will hedge my bet.' Then they lock in contracts for crude oil, essentially buying crude."

Then there's a rush to buy, and crude oil goes up because of it.

"Prices are not going to go down because of the news," he said. "The attitude is that they might as well buy now just in case."

Average Winnipeg prices at the pump have gone from $1.24.5 on Tuesday to $1.32.5 on Friday afternoon. The highest recorded price in Winnipeg on Friday was $1.37.9 per litre at an Esso station at McLeod Avenue and Molson Street, and the lowest was $1.26.9 at two Costco locations.

Roger McKnight, an analyst with En-Pro International, said Friday he sees pump prices rising by more than two cents in the Toronto area today to around $1.42 a litre. Wholesale prices are also rising in the western part of the country.

Canada-wide, the average pump price is currently at just under $1.36, Gasbuddy.com reported.

Toews said if not for the current crisis in Iraq, he would expect prices in Winnipeg to come down by about six cents per litre over the next couple of weeks. That has been the trend over the past few months where the market leader will raise prices and the rest of the market follows and then they fall back again.

"It is profit-margin restoration," Toews said. "All the gas stations make more off gas when they raise the prices. But, to be fair, when prices come back down, they are really not making as much."

The price increase has nothing to do with supply and demand in North America. The culprits are traders on Wall Street who are nervously eyeing how sectarian tensions in Iraq could affect global oil supplies.

Al-Qaida-inspired militants captured two key cities in Iraq this week and are threatening to march on Baghdad.

"I get the impression that these traders are just watching these militants and seeing how far south they can go in Iraq because that's where the oilfields are and the export terminals, are," McKnight said.

"So the further south they get, it looks like the further north our prices go."

North America buys relatively little crude from Iraq, so any potential disruption to supplies would have more of an impact in Europe.

However, Toews pointed out crude-oil prices have gone up $7 to $8 per barrel over the past few months, which is about seven to eight per cent.

"That does get reflected at the pump," said Toews.

About 70 per cent of the cost of a litre of gas comes from the price of crude oil.

McKnight said things are looking pretty good in the Canadian and U.S. markets.

"The inventories in the U.S. are fine. The refineries are running pretty well... the demand is healthy, but not extreme. There's no pipeline problems... there's no weather problems as yet," said McKnight.

"Everything is just fine in North America. It's just everybody's watching what's happening 6,000 miles away."

Events in Iraq have an impact on the price of Brent crude, a global benchmark for oil that can travel around the world by sea. The main benchmark for inland North American crude, West Texas Intermediate, trades lower than Brent, but has recently been moving in tandem with it, McKnight said.

Oil prices are at 10-month highs, with WTI for July delivery rising 38 cents to close Friday at US$106.91 a barrel and Brent crude rising 39 cents to close at US$113.41 a barrel. For the week, WTI was up 4.1 per cent and Brent was up 4.4 per cent.

The good news for Canadian motorists is high oil prices boost the Canadian dollar. That helps ease the pinch somewhat as energy products are bought and sold in U.S. dollars.

 

-- files from Lauren Krugel of The Canadian Press

martin.cash@freepress.mb.ca

Manitoba Historical Gas Price Charts Provided by GasBuddy.com

Republished from the Winnipeg Free Press print edition June 14, 2014 B6

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