Gas Prices Expected to Change as Excise Tax Pause Comes to an End

Canadian drivers may soon face higher fuel costs as the temporary federal fuel excise tax suspension is scheduled to end on September 7.

While global oil prices remain under pressure due to the ongoing Iran conflict, the return of the tax could further increase the cost of filling up unless the federal government extends the relief measure.

Federal Fuel Tax Relief Ends Soon

The federal government introduced a temporary pause on the fuel excise tax in April, removing the tax on retail gasoline until September 7 to help ease rising fuel costs.

There has been no confirmation on whether Ottawa will extend the tax suspension. If it expires as planned, motorists across Canada could see another increase in pump prices.

Dan McTeague, President of Canadians for Affordable Energy, said the tax break has helped reduce some of the financial burden caused by rising global oil prices, although it has not been enough to prevent fuel prices from climbing overall.

Iran Conflict Continues to Pressure Global Oil Markets

The ongoing Iran war has significantly disrupted global oil supplies. Shipping through the Strait of Hormuz, a critical route that normally carries around one-fifth of the world’s crude oil, has been heavily restricted due to security concerns. Damage to nearby energy infrastructure has also affected global supply.

As a result:

• West Texas Intermediate (WTI) crude oil is trading near US$82 per barrel, compared with approximately US$75 one week earlier.
• According to CAA, Canada’s average regular gasoline price is about CA$1.67 per litre, up from CA$1.64 last week and around CA$1.33 during the same period last year.

Retail fuel prices continue to be influenced by crude oil costs, supply and demand, taxes, and other operating expenses.

How Much Could Prices Increase?

If the federal excise tax returns after September 7, gasoline prices could rise by approximately 10 to 11 cents per litre, depending on the province or region. This increase would be separate from any market-driven price fluctuations.

Winter Gasoline Could Offer Temporary Relief

Although drivers may experience a short-term increase if the tax returns, seasonal fuel changes could help lower prices shortly afterward.

Beginning around September 15, fuel suppliers transition from summer-grade gasoline to winter-grade gasoline. Winter fuel contains a higher proportion of butane, making it less expensive to produce while improving cold-weather engine performance.

McTeague estimates this seasonal change could reduce prices by roughly 8 to 9 cents per litre, potentially offsetting much of the tax-related increase after about one week.

Short-Term Price Swings Expected

If the tax suspension expires as scheduled, Canadian drivers could experience a brief period of higher prices between September 7 and September 15. Once winter gasoline becomes widely available, fuel costs may ease somewhat.

Long-Term Outlook Depends on Global Oil Supply

While seasonal fuel changes may provide temporary relief, global oil supply remains the biggest factor affecting future fuel prices.

The International Energy Agency (IEA) expects oil demand to soften over the coming months as higher prices reduce fuel consumption. However, it also warns that worldwide supply risks remain significant and forecasts demand to increase again next year.

If supply disruptions linked to the Iran conflict continue while global demand rebounds, oil and gasoline prices could remain elevated for an extended period.

Canadian motorists may soon face another increase in fuel prices if the federal fuel excise tax suspension ends on September 7.

Although the seasonal switch to winter gasoline could provide some relief days later, ongoing geopolitical tensions and uncertain global oil supplies will likely remain the biggest drivers of fuel prices in the months ahead.