Gasoline prices in Canada
The retail gasoline market in Canada is highly competitive and as a key industry participant, Imperial Oil appreciates that consumers take great interest in what they pay at the pump, in price volatility and in variances of pump price from one market to the next.
This is a complex issue and many factors affect pump prices in Canada. Among the key influencers are:
- cost of oil;
- forces of supply and demand in the North American wholesale gasoline market;
- federal, provincial and municipal taxes;
- the cost for retailers to transport and market gasoline to customers;
- day-to-day changes in local retail market conditions, e.g. the impact of a new competitor arriving in a market.
Independent observers who follow Canadian retail gasoline prices say, on average, in 2011 crude costs accounted for roughly 49.3% of what Canadians paid for a litre of gasoline. On the same litre, taxes made up 30.7%, refinery operating margin accounted for 14% and roughly 6% was left as operating margin for retailers to cover their operating costs and return a profit. (Source: MJ Ervin & Associates/Kent Marketing Group).
Of note, in 2011 Canadian gasoline prices, including taxes, were second lowest among G8 countries. Due to lower tax levels, the United States had the lowest tax-in gasoline prices among the G8 nations.
Oil is the key ingredient refiners use to make gasoline. Oil price is set in world markets and is based on global supply and demand. Geopolitical instability, unforeseen operating problems or even bad weather can impact crude supply. The ebbs and flows of the global economy can influence demand.
The wholesale price of gasoline is another important factor that influences pump price. The forces of supply and demand affect the price of wholesale gasoline bought and sold in a competitive North American market. Demand for wholesale fuel can change by as much as 25% between the busy summer driving season and quieter winter months (source MJ Ervin/Kent Marketing). Supply of wholesale refined products can be affected by unforeseen events, such as hurricanes.
Federal, provincial and municipal taxes represent a significant portion of the price that Canadian consumers pay at the pump. According to Natural Resources Canada, when gas prices are $1 a litre, Vancouver drivers pay nearly 43 cents of tax; drivers in Montreal pay about 42 cents of tax; drivers in Halifax pay 38.5 cents of tax; drivers in Toronto pay 36 cents of tax; and drivers in Calgary pay 24 cents of tax.
Local market conditions and local competition have a significant impact on gasoline prices and can influence day-to-day price changes or differences from one market to the next. A retailer’s operating expenses will vary according to land and labour costs and also the cost to transport wholesale fuel to the site for resale. Less productive sites often post higher pump prices to cover their higher operating expenses.
Gasoline retailers must always balance profitability versus long-term market share. After a period of downward price pressure, retailers will eventually be forced to post a higher price to return an acceptable level of profitability. Others in the market may match that price. In highly competitive markets, this cycle repeats itself over and over. Price volatility is, in fact, a sign that competitive forces in the marketplace are at work.
For more information on pump prices in Canada, please go to Natural Resources Canada www.nrcan.gc.ca/eneene/focinf-eng.php
Another valuable information resource is the Canadian Petroleum Products Institute.