The rise and fall of gas prices

The prices we pay at the pumps have been steadily decreasing over the last few months, but can we expect to see a continuation of the trend in the new-year?

  • Jan. 7, 2009 10:00 a.m.

The prices we pay at the pumps have been steadily decreasing over the last few months, but can we expect to see a continuation of the trend in the new-year?

According to the recommended sites, www.retail.petrocanada.ca and www.shell.ca, there are four main factors behind the fluctuation of the cost to fill our vehicles and the first is taxes.

Taxes are one of the largest components of Canadian retail pump prices. In 2007, Canadians paid an average of 32.5 cents tax on every litre of gasoline or, just over $16 on a 50-litre fill. Taxes on gasoline vary by province based on difference in provincial gasoline tax, provincial sales tax and in some cities, sales tax or carbon tax. Carbon tax was applied to most fuels in the province of British Columbia on July 1, 2008.

The second factor reflecting cost is crude oil- a globally traded commodity and the base product used to refine gasoline and diesel fuel. Canadian producers have no influence over world prices because our domestic crude oil production is a small fraction of total global production. Crude oil prices are influenced by changes in global supply and demand, current inventory levels and geopolitical events.

Next comes refining and market costs which cover all costs of operation, such as the costs of refining crude oil into gasoline, transportation and distribution charges, as well as all marketing and operational expenses at the retail level. At the retail level, prices for independently owned and operated sites are set the by the operator while prices for the company owned sites are set by the company. Although an independent retailer may be able to choose the price at their retail site, they need to remain competitive with the surrounding market and frequently view their competitor’s signs thus making adjustments to their own. While some may see this as collusion, company representatives describe it as “the result of healthy competition.”

Profit must also be included in the equation. Primarily for example’s sake, in 2007 the overall Petro-Canada and refining profit as depicted in a pie chart was three per cent. Crude oil represented 48 per cent, taxes represented 32 per cent, and refining and market costs were 17 per cent.

The last topic to take into consideration is wholesale gasoline which is bought and sold on commodity markets, much like crude oil. As gasoline is a commodity that flows freely between Canada and the U.S., Canadian wholesale prices, or the prices retailers pay, are tied closely to U.S. commodity prices. Any disruption in the supply in the U.S. market impacts wholesale prices throughout North America – one of the main reasons why we are seeing lower numbers at the pumps today. With the current global economic situation, demand is expected to continue to weaken as the economy continues to slow.

While we cannot fully predict what 2009 has in store, there are ways one can improve fuel economy regardless of its cost. Maintain moderate speeds and steady acceleration while driving longer distances, avoid short trips where the engine does not have the chance to “warm up” especially with our recent temperatures, and keep your vehicle properly maintained and perhaps your dollar and your mileage will stretch a little further.