Could ‘demand destruction’ bring gas price relief? Experts are not so sure

In theory, reaching an unsustainable price would serve as a tipping point and ultimately cause fuel prices to fall, finally offering drivers some relief.

There’s a famous saying that ‘the cure for high prices is high prices,’ but when it comes to gasoline, that may not necessarily be the case.

Experts are torn on when or even if drivers might see significant “demand destruction” – an economics term for a sustained decline in demand for a product due to excessively high prices – at the pumps.

In theory, reaching an unsustainable price would serve as a tipping point and ultimately cause fuel prices to fall, finally offering drivers some relief. But analysts say we’re not there yet even though gas prices are hovering around all-time highs.

“Canada’s gas prices are at inflation-adjusted records. But I continue to be astonished at the high level of demand we’re seeing,” said Patrick De Haan, head of petroleum analysis for the fuel price tracking service GasBuddy.com.

Gasoline prices have been rising since February, ever since Russia’s invasion of Ukraine sent shock waves through international energy markets.

On Thursday, the national average retail price at the pump in Canada was 208.5 cents per litre, a whopping 76 cents higher than last year’s average of 132.2 cents per litre. The country hit an all-time record of 210.8 cents per litre on June 12, according to GasBuddy.

While Canada doesn’t have good statistics on consumer fuel consumption, De Haan said gasoline purchases are likely comparative to the U.S., where federal data shows gasoline demand has backed off only about five to 10 per cent since prices first began to spike earlier this year.

He said that’s surprisingly low, but likely has everything to do with the lifting of COVID-19 restrictions.