The highways and byways of the nation will be busier than usual and the traffic a little more frantic in the weeks ahead.
Vacation season has arrived and Canadians are on the move, many of them hauling trailers, boats or Sea-Doos, or packing canoes, kayaks, bicycles and other holiday accoutrements.
But most of us hitting the road this summer will be of two minds. We'll be dreaming of our destinations - be they seaside, mountainside or lakeside. We'll also be watching the gas gauge and wondering: How much is it going to cost to get there?
Gas prices are a top-of-mind issue these days and rightly so. Five years ago, a barrel of oil went for under US$30 and a litre of gasoline was selling for about 65 cents. Last week, oil touched US$145 a barrel and Canadian motorists were paying anywhere from $1.25 to $1.40 a litre at the pumps.
We may be paying a lot more in the near future, according to an unnerving report released two weeks ago by CIBC World Markets. Co-authors Jeff Rubin and Benjamin Tal, two senior economists with the bank, predict that the price of oil will hit $200 a barrel in 2010 and they foresee some dire consequences.
Their analysis focuses on the repercussions in the U.S. They say gas prices will rise to $7 a gallon from the current level of $4 per gallon and they predict that that will lead to "quantum shifts in driving behaviour in America."
Americans are already driving 11 billion fewer miles, or 4.3 per cent less this year than they did in 2007, and gas at $7 a gallon would lead to a 15-per-cent reduction, they say. Sales of light trucks, which also include vans and sport utility vehicles, would fall at least 50 per cent, back to the levels of the early 1990s.
Currently, there are some 246 million light vehicles in circulation in the U.S., versus 20 million in Canada, and Rubin and Tal predict that as many as 10 million mainly older autos will come off the road. They also anticipate that new car sales will fall from 14 million units this year to as low as 11 million in 2012.
Changes of that magnitude would have dire economic consequences. The price of used vehicles would collapse. That would discourage new car buyers in two ways. It would make older vehicles more attractive financially than new ones. As well, motorists with good used vehicles couldn't get much on a trade-in to finance their next purchase.
Finally, if Americans continue to drive less due to high gas prices it means their vehicles will last longer and that, too, translates into less demand for new ones.
Auto analyst Dennis DesRosiers estimates that by cutting their yearly mileages driven by 1,000, on average, they would need 1.2 million fewer new cars, given the typical lifetime of about 200,000 miles, or 300,000 kilometres.
That's the dark view of the future and where oil prices are headed.
Others believe that the price can only go so high before causing what they call "demand destruction.”
They contend that that will happen well before oil ever reaches $200 a barrel and, when it does, the price could fall well below current levels.
A recent report from TD Waterhouse suggests that oil prices may already have peaked due to falling demand. Derek Burleton, director of economic studies, and his colleague Dina Cover point out that crude consumption worldwide is up 0.4 per cent this year, compared with growth of 1.2 per cent in 2007.
In the U.S., it is down three per cent and in Western Europe it has fallen one per cent. The prevailing view is that demand in China, India and other Asian countries will more than make up for reductions in the western industrialized nations, but according to Burleton and Cover there are signs that consumption is beginning to slow down or even recede in the developing countries.
They note that governments in India, Malaysia, Taiwan, Sri Lanka and Thailand have all recently announced reductions in fuel subsidies, which should reduce consumption, and some observers have speculated that China may do the same once the Olympics are over.
"The trends witnessed so far this year indicate that elevated prices are beginning to put a damper on global consumption of crude oil and refined products," Burleton and Cover argue. "And evidence of demand destruction is almost certain to become even more visible in the months ahead ..."
Based on this scenario, they predict that oil will average about US$100 per barrel in 2009.
That's still expensive, but nowhere near as bad as CIBC's $200-a-barrel nightmare scenario.
(D'Arcy Jenish can be reached at jenish@businessedge.ca)
