Posthaste: Why Canadians might be doomed to suffer a ‘new normal’ for oil prices

The federal government gave financially stretched Canadians a break at the pump a year ago after axing the much-despised

carbon tax

on gasoline, but those gains and then some have evaporated.

Economists and

oil and gas

analysts now expect drivers could be looking at a “new normal” of higher energy prices thanks to a greater risk premium for

oil

even after the dust settles in

Iran

.

“The new normal is not likely to be US$60 a barrel,” Avery Shenfeld, chief economist at CIBC Capital Markets, said in a podcast released on Thursday. “There’s likely to be a remaining risk premium in the energy market, but, say, somewhere between US$75 and US$80 a barrel in the course of the fourth quarter; that’s the base for our forecast.”

Prior to the outbreak of the war, the price for a barrel of

West Texas Intermediate

(WTI), the North American benchmark, was about US$60 a barrel. Prices then rose nearly 70 per cent to a high of US$112.95.

Oil prices rose after

Iran effectively closed the Strait of Hormuz, a major gateway for oil and gas supplies to Europe and Asia, removing an estimated 10 million barrels a day of supply from global markets, according to Oxford Economics Ltd. 

Iran announced Friday that the Strait of Hormuz was completely open to commercial shipping. Prices for WTI fell from nearly US$95 to just under US$85.

“When (the war) does come to an end, that risk premium will be higher,” Randy Ollenberger, managing director and oil and gas analyst at BMO Capital Markets, said during a web session with investors, pegging the premium at US$10 from US$5 previously.

Oil futures were signalling to expect higher oil prices through 2026 and 2027, Scotia Capital Markets said.

“The futures curve remains elevated at sustainably higher prices throughout 2026–27,” Derek Holt, vice-president of economics at Scotia Capital, said in a note last week, with futures pricing WTI at more than US$70 a barrel.

Near-term prices reflected the clampdown in the Strait of Hormuz, Douglas Porter, chief economist at Bank of Montreal, said.

“Where you get into talking about a risk premium is when you get two years from now, or maybe even a year from now,” he said, adding that the one-year future price for Brent crude, another oil benchmark, is US$80, up from US$67 just before the war began.

But Porter said an elevated risk premium and higher prices aren’t “foregone conclusions,” though that “is the signal markets are sending to us.”

He said the energy markets reversed themselves in several previous shocks, including the commodity supercycle when WTI prices rose to US$150 a barrel in 2008 and then crashed back down for reasons separate from what spurred the increase.

Similarly, prices in 2014 rose above US$100 on fears that the terrorist group Islamic State of Iraq and Syria would wreak havoc across the Middle East, leading to a permanent increase in oil prices. That was not to be, either.

Porter said oil markets are finely balanced and even a slight drop in demand could have a significant impact on prices.

“The risk is, yes, oil prices will on a semi-permanent basis be pushed up by this,” he said. “You could definitely come up with a scenario where prices retreat very quickly over the next year.”

• Posthaste: Canada faces an entrepreneurial ‘drought’ as more businesses close than open
• Posthaste: What Mark Carney’s gas tax cut could mean for the Bank of Canada

Spring is traditionally the busiest time for real estate and this year, the stakes couldn’t be higher. Follow our Spring Real Estate Survival Guide series as we unpack some of the most pressing questions buyers and sellers are grappling with, plus expert advice on how to navigate the reality of a slower market.

Read the series here

 Sign up here to get Posthaste delivered straight to your inbox.

• Today’s data: Canada housing starts, international securities transactions

• Why first-time homebuyers are still treading cautiously this spring
• AI helped CIBC save 1.2 million hours, cut mortgage approval times at TD, CEOs say
• Three steps to make filing your tax return to the CRA less painful

Gerry is in his late 70s and retired. He and his wife have saved enough to live comfortably for the remainder of their lives. The dilemma? The large majority of  their retirement investments are in solid blue-chip Canadian stocks that have historically never missed dividend payments. However, the market value is fluctuating significantly given current geopolitical factors. Gerry wants to know if it would be wise to cash in all their investments and purchase guaranteed investment certificates? Keep reading here to find out if they should make the switch or stay the course.

Interested in energy? The subscriber-only FP West: Energy Insider newsletter brings you exclusive reporting and in-depth analysis on one of the country’s most important sectors.

Sign up here.

McLister on mortgages

Want to learn more about mortgages? Mortgage strategist Robert McLister’s

Financial Post column

can help navigate the complex sector, from the latest trends to financing opportunities you won’t want to miss. Plus check his

mortgage rate page

for Canada’s lowest national mortgage rates, updated daily.

Financial Post on YouTube

Visit the Financial Post’s

YouTube channel

for interviews with Canada’s leading experts in business, economics, housing, the energy sector and more.

Today’s Posthaste was written by Gigi Suhanic with additional reporting from Financial Post staff and Bloomberg.

Have a story idea, pitch, embargoed report, or a suggestion for this newsletter? Email us at 

posthaste@postmedia.com

.

Bookmark our website and support our journalism: Don’t miss the business news you need to know — add financialpost.com to your bookmarks and sign up for our newsletters here