We've been getting a lot of questions this summer about fluctuating gas prices - and with the long weekend coming up, we're fielding the usual "Why do gas prices seem to go up right before a long weekend?" questions as well. So we thought we'd take this opportunity to discuss both topics in one post!
First of all, when it comes to long weekend gas prices, the idea that the price of gas is being artificially inflated right before a long weekend to cash in on holiday travel is a myth. Whether the price is going up or down, gas prices are always determined by the following (via Natural Resources Canada):
- Changes in world crude oil prices
- Availability of supply to meet demand
- Local competition among retailers
- Seasonal demand, i.e. the annual spike in demand for gasoline during the summer driving season
- Inventory levels
So what are some of the factors affecting gasoline prices this summer in particular? We got an update from our pricing team to give us some insight into the current state of gas prices.
1. The Canadian dollar. The world crude oil prices are lower recently and people want to know why they're not seeing those savings at the pump. Part of the reason is that our Canadian dollar has dropped significantly. The world crude oil price has also dropped, but it is priced in U.S. dollars - because the Canadian dollar has lost several cents in recent weeks, the corresponding rise in price for us to purchase crude oil cancels out much of the decline in the world crude price.
2. Commodity prices. Gasoline, like sugar and oranges, is a commodity - meaning that the commodity market determines the wholesale price, not your local gas station owner. Commodity prices for gasoline in the U.S. have remained relatively high over the past few weeks because of surging summer demand (miles driven is up sharply in the U.S.) and there have been some refinery issues this summer which have led to a tight supply. High demand and low supply in the U.S. have a corresponding impact on Canadian prices.
3. Tax increases. There have been some significant tax increases on gasoline in certain regions this year, for example in Alberta, and because of the Cap and Trade system introduced in Quebec.
4. Regional differences in pricing. Obviously pricing will vary from region to region based on supply, demand, local taxes and local competition between gas stations. Here in Vancouver, for example, gas is usually at least 15¢ more per litre than in my hometown of Edmonton, because provincial fuel taxes are higher and our municipality charges a significant transit tax on gasoline. For more information about how local taxes affect gas prices in your province, check out Petro-Canada's page about gasoline taxes across Canada.
5. Perception. When gas prices fluctuate frequently, it's frustrating but it may not represent a trend towards consistently higher pricing. Based on Kent Marketing's analysis of gas prices a few weeks ago, the average price of gasoline in Canada is still lower this year than last year (see graphic below).
For more information about how gas prices work, visit our Gas Pricing archive here on PumpTalk or our FAQs on Gas Prices. And for ways to save on gas and increase your own fuel efficiency, check out the Ways to Save on Fuel infographic.