Oil Hit $100 Per Barrel: What This Could Mean For You

As conflict in the Middle East continues, soaring oil prices are renewing concerns about the economic impacts and how they will affect Canadian consumers.

In early March, North American benchmark West Texas Intermediate (WTI) surged past US$100 per barrel – a level not reached since 2022¹ – before retreating. As we often see when geopolitical issues arise, threats to supply and demand due to instability can cause prices to climb.

The impact on Canadians is already being felt; the average national gas price has risen about 25 cents per litre since January.² Plus inflation worries are back on people’s minds as higher gas prices could increase the cost of most goods. At the same time, Canada’s energy sector and parts of the industrial and materials sectors may benefit from higher oil prices, says Jesse Coote, Associate Portfolio Manager, North American Equities at RBC Global Asset Management. Here’s what Canadians should know.

Why oil prices have risen so drastically

The effective shutdown of the Strait of Hormuz, a critical waterway through which roughly 20% of global oil shipments pass,³ has been a key reason why both oil and natural gas prices have climbed since early March.

Uncertainty about safe passage through the Strait has caused local storage capacity to fill up rapidly. This, in turn, has forced some oil-producing Gulf states, including Saudi Arabia, Kuwait and Iraq, to curb production. “They have nowhere to send the [oil]. They can’t load it onto tankers because tankers can’t get into the Persian Gulf, which is sending the price higher and higher,” Coote says.

The supply pressures are hitting Europe and Asia particularly hard since those regions rely heavily on oil imports from the Middle East.

How higher oil prices affect consumers

While Canada only gets a little over 10 per cent of its oil from the Middle East,⁴ and much of our oil is drilled here, oil is priced based on global benchmarks. When crude prices rise, gasoline prices typically follow, meaning Canadians will pay more at the pump, both for Canadian oil and oil imported from overseas.

Gas is, of course, an essential expense for many Canadians, which means the increased costs could cut into household purchasing power. That might then reduce demand for other goods and services, which in turn could cause the Canadian economy to slow down.

Rising fuel prices also impact many other costs, including the transportation to ship goods and the energy required to make them, Coote says. If these costs are passed down to consumers, inflation, which has finally fallen to around the Bank of Canada’s 2% target, could begin to climb again. However, for oil prices to influence how businesses price their products, they must remain elevated for months, Coote notes.

At the time of writing, it’s not clear how long the Strait of Hormuz will remain shut down, or whether the conflict will last days or months, Coote says. “If we see this de-escalate quickly, maybe the impact will be very transitory, but the longer it goes, the higher the inflationary impact will be,” he says. If oil prices remain elevated, there could also be a risk of demand destruction, he adds, where consumer demand for certain commodities, such as gasoline, falls for extended periods.

What it could mean for Canada’s oil sector

It could be a better story for oil. If crude prices go up, companies that produce oil and gas could see higher revenue and this sector accounted for about 3 per cent of Canada’s overall gross domestic product in 2024.⁵

In Canada, the main heavy crude benchmark is Western Canada Select (WCS), which typically trades at a discount to WTI because heavy crude tends to be more difficult to process. WCS, though, has also climbed amid tightening global oil supply, which could further bolster revenues for Canadian oil companies.

“Higher oil prices typically mean healthier energy companies,” Coote says. “That means healthier employment in those provinces.”

Canada’s heavy crude could also be a favourable option for countries in Asia and Europe that now have a gap to fill because of the Strait’s closure, even though they typically import medium crude from the Middle East, Coote says. But whether Canada has capacity to provide it is a different story.

“We're sending about as much oil to the west coast to be exported as we possibly can. So we're not going to see any uptick in volumes to replace what's come off the market globally,” he adds.

Impact on energy stocks

Canadian energy stocks have continued to rise amid the conflict, a trend that began in the latter half of last year, Coote says. However, that may not be a direct result of the recent surge in oil prices.

“Yes, we have higher oil prices today, but it doesn't mean that investors are baking higher oil prices into the future, because this conflict could de-escalate very rapidly,” he says. “So, there's still caution among investors when it comes to energy equities.”

Coote adds that other parts of the market, such as chemical companies within the materials sector, may also benefit from higher oil prices, since many of the raw materials used to produce chemicals are derived from crude oil.

Ultimately, the rise in oil prices is a “bit of a balancing act,” says Coote. “Higher prices are not generally great for consumers, but they can be a net positive for the Canadian economy.”