The True Cost of Gasoline? These days, gas prices seem to be going up and down and all around with more volatility than ever before. Barrels of oil are worth about a third of what they were last year, yet gas prices are certainly not a third of what they were last year. Unfortunately for those who love big trucks and SUVs, lower oil prices do not always translate into lower gasoline prices. So why are Canadians not seeing the same discount at the pumps despite the super low crude oil prices? Although crude oil price is one factor that affects wholesale gasoline prices, there are other factors that directly influence the price of gasoline as well.
The Four main factors that affect gasoline prices at the pump are: crude oil, refining and operational costs, wholesale gasoline and taxes. Each factor has its vulnerabilities and experiences its own fluctuations. Here is a breakdown of some factors that determine the price you pay every time you fill up at the pumps.
Crude oil is a globally traded commodity and is the main element used to refine gasoline and diesel fuel. The price of crude oil is dependent on the world assessment of supply and demand, both present and future. These assessments are influenced by economic conditions, natural disasters, and geopolitical events.
Refining and Operational Costs
This segment of the price considers all costs of operations. This includes the costs of refining crude oil into gasoline, transportation and distribution charges, as well as all operational costs and mark ups at the business/retail level.
Fuel prices include federal and provincial taxes, and depending on the city, there could be additional taxes. Canadians pay an average of 39 cents per litre compared to 17 cents in the United States (US). This adds up to just over 15 dollars for every 40 litres.
Supply and demand conditions for gasoline can impact the price of gasoline more than the price of crude oil. Gasoline is also a global commodity with prices fluctuating in correlation with its trading activity on commodity exchanges. Refinery incidents, turbulent weather and disruption in supply in the US all have the ability to affect the balance of supply and demand of gasoline.
As a result of these factors, gasoline prices can increase even if crude prices are decreasing. We hope that we’ve left you with some things to ponder while you’re next waiting at the pump. Drive safe.