Previous month:
March 2011
Next month:
June 2011

1 entry from May 2011

Gas prices go up and down, but what causes this? And how are prices set in the first place?

Crude oil is a commodity, like coffee or wheat, with prices set on global markets. Just as a poor coffee bean harvest can increase the price of your morning coffee, when something significant happens to the supply of crude oil or gasoline, prices may be affected. Local competition is a big factor too. If one site drops the price to get more business, other sites in the area may adjust their own prices to keep customers from going down the road. So retailers continuously monitor and adjust prices to remain competitive.

Crude oil is not the only factor in setting the price we pay at the pump. Wholesale gasoline is also a commodity that’s traded on markets, so local market forces play a significant role in determining the retail price for fuel. Another significant factor is taxes, which vary both within Canada and around the world. In Canada, every province and even some individual municipalities apply taxes at different levels, which can contribute to the regional differences you see at the pump. In the U.S., there are also federal, state and local taxes, but often at much lower levels than in Canada.

Let us know if you still have questions!