Understanding gas prices in Canada.

Why are gas prices rising? Why are gas prices falling? These are questions we hear on a regular basis. Gas prices are affected by many factors. Here’s a breakdown of some of them.

Gas taxes

Taxes are one of the largest components of fuel prices in Canada. In 2017, Canadians paid an average of 27.6 cents of tax on every litre of gasoline. This represents almost $14 on a typical 50 litre fill up (excluding sales tax).

Gas taxes vary significantly by province and in some cases by city. Some cities have a municipal fuel tax, so that certainly creates regional differences in pump prices. And some areas have carbon taxes and levies that affect gas prices.

Crude oil

Crude oil is a globally traded commodity and is the base product used to refine gasoline and diesel fuel. As Canadian producers, we have no influence over world crude oil prices because our domestic crude oil production is a small fraction of the total global production.

Crude oil prices are influenced by changes in global supply and demand, current inventory levels and geopolitical events.

Wholesale gasoline

Like crude oil, wholesale gasoline is bought and sold on commodity markets. And because gasoline is a commodity that flows freely between Canada and the US, Canadian wholesale prices (the prices retailers pay) are tied closely to US commodity prices.

Because of this close tie to the US commodity prices, any significant disruption in supply in the US, a market 10 times the size of our Canadian market, can impact wholesale prices in Canada as well.

Refining and marketing costs

This portion of the price covers all of the operation costs, like the refining cost (refining crude oil into gasoline), the transportation and distribution charges, and all marketing and operational expenses at the station.

Resources

Canadian Fuels Association
Natural Resources Canada – Crude Oil Pricing