The reweighting, which Statistics Canada carries out every year, has historically had only a marginal impact on the headline number. The new basket weights will be applied to May’s inflation data, due out on June 27.

The rebalancing reflects changes in 2022 compared to 2021. StatCan said the alterations were designed to take into account the continuing recovery from the impact of COVID-19.

“Spending that began to gradually shift back towards pre-pandemic patterns in 2021 continued and were more pronounced in 2022, with several sectors inching closer to pre-pandemic basket weight shares,” it said.

COVID-related measures and disruptions to supply chains helped push Canadian inflation up to a near-40 year high of 8.1 per cent in June last year. It has now dropped to 4.4 per cent, still more than double the Bank of Canada’s two per cent target.

Gasoline prices, pushed higher by increased demand as well as Russia’s invasion of Ukraine, will now account for 4.27 per cent of overall inflation, up from 3.47 per cent.

Gasoline is part of the larger transportation component which, for the second consecutive year, increased the most among the major eight segments, rising to 16.94 per cent from 16.16.

The food component expanded to 16.13 per cent from 15.75 per cent, reflecting increases in sales at restaurants as lockdown measures were removed.

But the shelter component dropped to 28.22 per cent from 29.67 per cent, in part due to lower costs for rent and other accommodation expenses as the housing market cooled.

DVD players were removed from the 2023 basket as they have become less popular with consumers following the advent of streaming services. Conversely, charcoal barbecues and snow removal equipment were added.

— David Ljunggren is a Reuters political correspondent in Ottawa.

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And while that move was bullish for the markets, by how much remains to be seen, said Phil Flynn of the Price Futures Group in Chicago.

“It’s probably put a floor under the price of oil,” Flynn commented. “The question is how high will it go?”

Reports said that in addition to the Saudi cut, the rest of the 23-member alliance would reduce its output by a net 400,000 BPD.

To justify the cut, Saudi Arabia said there’s a looming supply glut in the global oil market that’s already contending with weaker prices.

Flynn said crude oil modestly increased but there were still issues, noting there continued to be tensions within OPEC and OPEC+.

As the week of June 5 started, prices for Brent Crude and West Texas Intermediate gained more than $1 per barrel. However, by mid-afternoon that Monday those gains faded to well below 50 cents per barrel (all figures US$).

Prices are “struggling because the Saudis made some comments…that they’re fed up with OPEC members who aren’t meeting their oil output goals,” Flynn explained, pointing to some of the cartel’s African members.

Also, Flynn said another report on Monday indicated Russian oil loadings at the country’s western ports hit a four-year high in May, as they produced as much as they could and sold it at a discount.

“The Saudis are calling for more transparency from the Russians as to how much oil they are producing,” he added, pointing to Russia previously promising its OPEC+ partners it would reduce its output.

As for Saudi Arabia, Flynn stated the kingdom believes it can push up oil prices and not hurt its share of the global market.

However, he said the current market has been nervous and pessimistic as to what could come down the road. Otherwise the oil market normally looks ahead to see what could transpire.

“They’re erring on the side that demand is going to fall off the map even though that hasn’t happened yet,” Flynn said, noting that supplies remain tight.

North American prices will climb upward again, he added, suggesting gasoline in the United States could reach $5 per gallon.

“But I think the market is going to need a little convincing in the days ahead as to whether the economy can stand this production cut and see if inventories really tighten,” Flynn said.

One wildcard he cited was Russia, as it likely wants to avoid a price war with Saudi Arabia.

“If they don’t keep the Saudis in their back pocket this turns into a price war, and neither one of these countries are going to win,” Flynn emphasized. “But the jury is still out as to whether the Russia can comply.”

It’s estimated OPEC+ is responsible for 40 per cent of the world’s crude oil. The alliance is comprised of the 13 members of the Organization of the Petroleum Exporting Countries and 10 additional members including Russia, Mexico and Kazakhstan.

— Glen Hallick reports for MarketsFarm from Winnipeg.

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The Renewable Fuel Standard requires the nation’s oil refiners to add billions of gallons of biofuels like corn-based ethanol into the fuel pool each year in a policy intended to help farmers, reduce energy imports and combat climate change.

The EPA this month unveiled a proposal that would lift the volumes mandates over the next three years from 20.82 billion gallons in 2023 to 22.68 billion gallons in 2025, including more than 15 billion gallons annually of convention biofuels like corn-based ethanol.

That proposal would boost greenhouse gas emissions over the three-year term by 81 million to 265.9 million tonnes because new tilling for corn, soy and other plantings releases carbon from the soil, according to the EPA’s internal analysis of the proposal, reviewed by Reuters.

That’s the climate equivalent of driving between 17.5 million and 57 million vehicles for one year, according to the EPA’s greenhouse gas equivalences calculator.

EPA’s analysis, however, projects that those emissions will be more than offset in the long term due to reduced tailpipe emissions and other factors, assuming biofuel volume mandates don’t change after 2025.

For example, over 30 years the proposal would lead to a net reduction of greenhouse gas emissions of between 128 million and 1.16 billion tonnes, it said, akin to taking between 28 million and 250 million cars off the road for one year.

“Overall, based on the wide range of lifecycle GHG estimates in the scientific literature, the proposed volumes of renewable fuel are estimated to reduce GHG emissions,” the agency said in an emailed statement. It said it would be “inappropriate to truncate the analysis after three years.”

Valerie Thomas, a professor of systems engineering at the Georgia Institute of Technology and chair of the National Academy of Sciences, Engineering and Medicine committee on lifecycle analyses for low-carbon transportation fuels, said the projected initial emissions increase was worrying.

She echoed other scientists and policymakers who say emissions must fall rapidly to avert the worst effects of the changing climate.

“For driving near-term climate change, it’s the near-term emissions that matter,” she said.

Thomas added that it was also vital for the EPA to monitor emissions to verify the long-term greenhouse gas emission benefits.

Over the course of the RFS, EPA has typically increased biofuels mandates over time, not dropped them.

Geoff Cooper, head of the Renewable Fuels Association biofuel trade group, criticized the EPA projections.

“EPA’s analysis is flawed because it assumes cropland expansion will be necessary to support ethanol production volumes in 2023-25,” he said. “This purported ‘land use change’ assumed by EPA results in grossly exaggerated GHG emissions estimates for 2023-25.”

In the EPA’s analysis, the ethanol portion of the volume mandates could yield a net impact on emissions of anywhere between negative 99 million tonnes to positive 13.8 million tonnes over 30 years.

A study published this year in the Proceedings of the National Academy of Sciences found that ethanol is likely worse for the climate over its full life cycle than straight gasoline because of the carbon lost during corn planting.

The biofuel industry and the U.S. Department of Energy have rejected that research, citing other studies showing ethanol’s life cycle emissions far lower than gasoline.

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“I wish I could say there’s a light at the end of the tunnel, but I would say right now, it’s just a flicker,” he said, referring to consumers who are apoplectic about prices as being ‘petro-plectic.’

Kloza pointed a good chunk of the blame for the record-high prices on the exploration companies, the production companies and especially the refiners. He said refiners most often make $5 to $25 per barrel, but are now raking in $50 to $60/barrel (all figures US$).

“If they are running Canadian crude through the Great Lakes…it’s probably closer to $75 to $80/barrel. Those [prices] are not typical, those are epic,” he said.

While crude oil prices are certain to push higher, he doubted if they will top the $150/barrel as some analysts have suggested. Rather he expects them to be in the $120s per barrel, perhaps pushing above the March high of $130.50, but not much more.

Kloza explained there are three key reasons for the price hikes, with one being demand.

“It’s the perceived spike in gasoline demand and the overall increase in diesel demand that’s tied to China coming out of its lockdowns,” he said.

The second reason is the tight supply of diesel, especially in the U.S., and the third being the speculative flaws in the market.

“You’ll find that among the different classes of speculators, a small speculator does not have to report to the Commodities Futures Trading Commission. They can control $30 million worth of fuel. That’s badly in need of an update,” Kloza stressed.

Added to that is the large amount of managed and fund money that’s “very skewed to the long side.”

As for Canadian crude prices, Kloza said the price differential is unusually high at this time.

As of Friday, the difference between the market prices for West Texas Intermediate crude oil was $20.77/barrel higher than Western Canadian Select. Most often the differential is around $13/barrel.

— Glen Hallick reports for MarketsFarm from Winnipeg.

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The move represents a temporary win for the biofuels industry and corn farmers, as it will likely expand sales of corn-based ethanol, and a setback for oil refiners, which view ethanol as competition.

It also is an attempt to temper the pace of inflation which has surged to a 16-year high.

Rising consumer prices are seen as a major vulnerability for President Joe Biden’s Democratic party leading into the November mid-term elections.

Biden first unveiled the plans to expand E15 sales earlier this month during a trip to an Iowa ethanol plant.

About 2,500 gas stations sell the higher-ethanol gasoline blend, called E15, as it is made up of 15 per cent ethanol. There are more than 100,000 gas stations nationwide.

At current prices, E15 can save a family 10 cents per gallon of gas on average, said White House press secretary Jen Psaki in a statement on Friday.

E15 sales have been restricted during summer over concerns it contributes to smog in hot weather, though research has shown that the 15 per cent blend may not increase smog relative to the more common 10 per cent blends sold year-round.

The EPA on Friday said that consumers can use E15 without concern that its use in the summer will impact air quality.

EPA’s emergency fuel waiver will go into effect on May 1 and will last for 20 days. However, Biden is committed to providing E15 all summer, Psaki said on Friday.

Though Friday’s waiver for summertime E15 is temporary, biofuel advocates have pushed for a permanent way for the fuel to be made available year-round. Governors from eight Midwest states, many of which are major corn producers, took action this week to try to allow year-round E15 in their states.

“We commend administrator (Michael) Regan and his team at EPA for acting quickly and decisively to implement the emergency fuel waiver announced recently by President Biden,” said Renewable Fuels Association president Geoff Cooper.

— Stephanie Kelly is a Reuters correspondent covering U.S. oil and biofuel policy from New York; additional reporting by Jarrett Renshaw.

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On March 15, the average price of regular gasoline in Canada reached a multi-year peak of 183.4 cents per litre before easing off at 174.1 cents one week later, according to Natural Resources Canada. Also on March 15, the average price of diesel reached 200.6 cents before declining to 188.4.

The nearby West Texas Intermediate (WTI) crude oil contract touched US$126.52 per barrel on March 7. However, COVID-19 lockdowns in China and an increase in U.S. inventories brought the price down to as low as US$92.20/barrel on March 15. Since then, it has risen to around US$110.

Shon Hiatt, associate professor of management and organization at the Marshall Business School of the University of Southern California, believes that as soon as the war ends, fuel prices may return to some sense of normalcy.

“China is going to get out of this COVID lockdown. This is just a temporary aspect and then they are going to ramp back up because there is just huge demand for products and goods,” Hiatt said.

“I think eventually this war will be over as soon as Russia takes over Ukraine, which is likely to happen. I don’t think (Russia) will stop until it’s done. When that happens, we will return to the markets we had before.

“The question is: will prices return to what they were in 2019 or even last year? They will not.”

For one reason, he said, Saudi Arabia needs oil to be priced at least US$85/barrel to fully fund government spending and the country’s outsized influence in OPEC+ would make sure the price stays high through supply controls.

The second reason is climate change policies, implemented by U.S. President Joe Biden, limiting growth in the country’s fossil fuel sector.

Hiatt also suggested Canada will be a factor.

“Canada has the potential to produce more oil. The problem is they are constrained on exports,” he explained, citing the failed Keystone XL pipeline which would have been in operation this June.

“(It) would have allowed another 800,000 barrels of oil to go on the global marketplace. Unfortunately, that’s not going to happen. Canada’s maxed out at 4.6 million barrels and it’s really infrastructure that preventing them from getting any more oil out of the ground.”

Hiatt expects gasoline prices to come down, but while he believes high commodity prices can help offset fuel costs for farmers, Hiatt maintains that diesel fuel will be priced highly throughout 2022.

“We’re not going to see prices like they were before. This entire year is going to be a high-priced fuel year,” he said, adding that fertilizer prices will also be high due to sanctions against producers in Russia and neighbouring Belarus.

Even without Russia’s invasion of Ukraine, however, Hiatt already expected WTI crude oil to exceed US$100/barrel this year.

“I still think that’s a possibility as the economy continues to expand and place constraints on (oil) supply on the market. (Prices will be) no less than the February prices prior to the invasion for this year,” he said.

— Adam Peleshaty reports for MarketsFarm from Stonewall, Man.

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One of those factors is the amount of crude oil produced by members of the Organization of Petroleum Exporting Countries (OPEC), along with some other oil-producing countries such as Russia, in an alliance known as OPEC-plus.

“It’s about OPEC-plus countries either being very disciplined in not producing as much crude as they can, or producing as much as they can, but falling short of what is needed and what is targeted,” he said.

The tension over a possible invasion of Ukraine by Russia is another factor driving up crude prices, as is the industry still trying to recover from the impact of the COVID-19 pandemic.

Kloza said he expects global crude oil prices to push to at least $100 per barrel, perhaps a little more (all figures US$). He noted some pump prices in California hit $4.72 per gallon on Wednesday, making for the most expensive fuel prices ever in the U.S.

“We are projecting that many states, not everyone, will see their highest [fuel] prices ever,” he stated, noting pump prices are likely increase by 50 cents per gallon over the coming months.

“It’s almost a fait accompli that we are going to get to at least $100 per barrel. The question is whether we stay there for long or do we go much higher?” Kloza posed.

However, he cautioned about the forecasts “from investment bankers and commodity houses” that would like to see crude oil increase to $125-$150/barrel. He suggested such projections could be too high.

One factor in the rise of North American prices Kloza pointed out is they are not demand-driven as demand across the continent remains below that of pre-pandemic levels.

For Canada, particularly the West, Kloza said that diesel prices are set to return to those last seen in 2008 and perhaps go higher.

“You can almost make the case that diesel prices will spike higher than gasoline prices,” he said.

Kloza said diesel is not as readily available for vehicle use as gasoline in Canada and the U.S. because of the demand from home heating and power generation.

To Kloza, the rise in fuel prices is leading to “an inflation-based recession” — a situation he said is being reported more and more in the media.

— Glen Hallick reports for MarketsFarm from Winnipeg.

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Analysis of samples from one of the city’s water tanks found “exceedingly high levels of various fuel components,” Amy Elgersma, Iqaluit’s chief administrative officer, said, adding it was likely diesel or kerosene.

Residents in Iqaluit, the capital of Canada’s northernmost territory Nunavut, reported fuel odours in the water over the weekend, but the source was not clear.

The city declared a state of emergency on Tuesday night, telling residents to stop using city water for drinking and cooking. The water would not be safe even after boiling, the city said.

Officials suspect the fuel entered the tank from soil or ground water contamination, and are emptying water from the tank to conduct further investigations.

Meanwhile water will be routed around the tank, and Elgersma said Iqaluit’s roughly 7,000 residents will receive instructions from the city on when they should flush their pipes.

“The best evidence that we have right now indicates that the risk of long-term health effects (for those who drank the water) is not a concern at this point,” Dr. Michael Patterson, Nunavut’s chief medical officer, said.

He added that there was “no evidence” of carcinogenic chemicals officials had worried about, including benzene and toluene, both of which can be found in fuel.

However, he cautioned that it could be the middle or end of next week before the city lifted the do-not-consume order.

Although Canada has 20 per cent of the world’s fresh water within its borders, 45 Indigenous communities across the country currently have boil-water advisories. Nunavut’s population is 86 per cent Indigenous.

Canada’s Indigenous people experience the country’s highest rates of poverty, with 25 per cent estimated to be living in poverty, according to the Canadian Poverty Institute.

Water is a contentious issue for Liberal Prime Minister Justin Trudeau, who was first elected in 2015 with a promise to end all boil-water advisories within five years.

— Moira Warburton reports for Reuters from Vancouver.

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The effort marks an unusual attempt by the petroleum industry to cozy up to its longtime rivals, reflecting the scale of its concern over President Joe Biden’s sweeping measures to combat climate change and tamp down fossil fuels.

While the oil industry and biofuels producers are natural competitors for space in America’s gas tanks, they share a desire to ensure a future for internal combustion engines.

The effort also reflects the rapidly shifting political landscape in Washington: the oil industry’s once-mighty influence has waned since Biden replaced Donald Trump as president, but the farm belt remains a vital and powerful political constituency.

The American Fuel and Petrochemical Manufacturers oil refining trade group confirmed it has been contacting state and national representatives of the corn and biofuel industries in recent weeks to seek support for a policy that would reduce the carbon-intensity of transport fuels and block efforts to provide federal subsidies for electric vehicles.

That proposal would be an alternative to Biden’s stated goal of electrifying the nation’s vehicle fleet and would ensure a continuing market for liquid fuels like gasoline and corn-based ethanol.

AFPM met in mid-January with some corn and biofuel industry lobbyists and some member refiners are hoping to host another meeting in February to discuss the future of liquid fuels.

“This whole idea was going to have to take a whole lot of time to gel, but we have made some progress,” said Derrick Morgan, senior vice-president at AFPM.

The industry’s push to change the course of electric vehicle policy faces big headwinds: California has announced a ban on internal combustion engines by 2035, other states are considering similar measures, and automaker General Motors on Thursday announced it will produce only electric vehicles by then.

Geoff Cooper, head of the Renewable Fuels Association, a leading biofuel industry trade group, confirmed RFA representatives were invited to participate in the February meeting, but said his organization had not yet decided whether to attend.

“We weren’t born yesterday and we’re not going to let the oil industry play us like a fiddle,” he said. “They have a long history of pushing surrogates and proxies to the microphone to do their dirty work and we’re not interested in that.”

The National Corn Growers Association is also considering whether to send staff the February discussion, according to two sources familiar with the matter.

NCGA CEO Jon Doggett told Reuters no such meeting had been scheduled, and distanced his group from the idea of an oil-corn alliance. “I have nothing to do with any refining groups. We haven’t talked,” he said.

Asked if any of its state-level member organizations were considering attending, Doggett replied, “We have dozens of groups. I can’t know what all of them are planning.”

Sources said the biofuel and corn industry is reluctant to join with the oil industry on this issue not just because of its longstanding rivalry with refiners, but also because it does not want to publicly oppose the energy policies of the new president.

Whiplash in Washington

The refining sector enjoyed a seat at the table under former President Donald Trump, who was keen to bolster the oil and gas industry.

Biden marks a complete reversal. He entered the White House promising measures to restrain the oil industry, from pausing new drilling leases on public lands to contemplating tougher limits on emissions.

Biden this week pledged to buy 645,000 electric cars for the government vehicle fleet as part of a broader plan to advance EVs through vehicle procurement, infrastructure development and subsidies, threatening the multi-billion dollar gasoline market.

AFPM’s Morgan said refiners are not scared of electric vehicles but dislike rigid government mandates. “What we have a problem with are heavy-handed mandates that take away consumer choice, either altogether or in large part. We don’t think that’s the right way forward,” Morgan said.

The oil industry believes carbon emissions from fuel can be reduced by requiring increased octane content, which makes gasoline burn cleaner. Ethanol is a popular octane booster.

The U.S. Renewable Fuel Standard currently requires refiners to blend biofuels like ethanol into fuels. As a result, most gasoline sold in the U.S. has about 10 per cent ethanol in it. The biofuel industry has been pushing hard to ensure those mandates continue.

“It’s no surprise the oil industry all of a sudden wants to give us a bear hug. We produce lower carbon fuels. They don’t,” said Emily Skor, head of the biofuel group Growth Energy.

— Reporting for Reuters by Jarrett Renshaw and Stephanie Kelly.

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GM, which also said it plans to become carbon-neutral by 2040, made the announcement just over a week after U.S. President Joe Biden took office pledging to tackle greenhouse gas emissions and dramatically boost sales of electric vehicles.

GM sold 2.55 million vehicles in the U.S. last year, but only about 20,000 were EVs — Chevy Bolt hatchbacks. It said in November it was investing $27 billion in electric and autonomous vehicles over the next five years, up from $20 billion planned before the coronavirus pandemic (all figures US$).

CEO Mary Barra has aggressively pushed GM to embrace electric vehicles and shift away from gasoline-powered vehicles.

She said in a statement the automaker had worked with the Environmental Defense Fund (EDF), an environmental advocacy group, to “develop a shared vision of an all-electric future and an aspiration to eliminate tailpipe emissions from new light-duty vehicles by 2035.”

Morgan Stanley auto analyst Adam Jonas said the decision is “based principally on economic grounds… Would GM decide to wind down a business in under 15 years if it truly felt it would spin off cash and provide positive economic value?”

Jonas added that investors should look for most if not all automakers “to follow GM’s precedent.”

In September, California Governor Gavin Newsom said the state plans to ban the sale of new gasoline-powered passenger cars and trucks starting in 2035. Several states, including Massachusetts, say they plan to follow suit.

In Canada, Quebec’s provincial government in November also announced plans for a 2035 ban on gasoline-powered cars and SUVs. The federal government has previously set a target for 100 per cent of all new light-duty vehicle sales to be zero-emission models by 2040.

“We’re taking actions so that we can eliminate tailpipe emissions by 2035,” Dane Parker, GM’s chief sustainability officer, told a media briefing. “Setting a goal for us 15 years from now is absolutely reachable.”

EDF president Fred Krupp said in a statement: “with this extraordinary step forward, GM is making it crystal clear that taking action to eliminate pollution from all new light-duty vehicles by 2035 is an essential element of any automaker’s business plan.”

David Friedman, a vice-president at Consumer Reports and former Obama adminstration auto regulator, said “strong aspirations are important and inspirational, but firm production plans and strong policies are what move the market and the climate.”

GM also said it will source 100 per cent renewable energy to power its U.S. sites by 2030 and global sites by 2035, five years ahead of a prior goal.

More than half of GM’s capital spending and product development team will be devoted to electric and electric-autonomous vehicle programs, GM said.

Biden on Monday vowed to replace the U.S. government’s fleet of roughly 650,000 vehicles with electric models as the new administration shifts its focus toward clean energy.

— David Shepardson reports on the U.S. transportation and auto sectors for Reuters from Washington, D.C.

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