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Gas Pricing: What Factors Affect the Prices You See At The Pump

Gas Prices

Gas prices are always a common subject for PumpTalk readers, so we decided to provide you with an update on pricing and what elements make up the price you see at the pump.  The two largest factors that influence gas prices are crude oil costs and taxes.  Following that is the cost of refining and marketing – which is all costs of operations – including the costs of refining and distribution, along with all marketing and operational expenses at the retail level.  

Other elements to consider are local competition and commodity gasoline prices. We discussed this in more detail in a previous post on gas pricing
Let’s focus on the largest piece of the puzzle – crude oil pricing.

What affects crude oil pricing? Some of the factors include:
  • Weather – including severe storms like Hurricane Katrina which affected crude oil prices back in 2005
  • Supply and demand – local and global (including the newly expanding demand of Asia)
  • US Crude Oil inventories
  • Cost of production and refinery infrastructure
  • Global Crises

You can read more about factors affecting crude oil prices at the Natural Resources Canada Website.

Here are some key factors that are affecting the price of crude today:

Over the last year, the price of oil has certainly had a bumpy ride.  Last year, the sharp rise was due to the conflict in Libya, while this year tensions with Iran continue to support the increase. 

In an article in the Globe and Mail by David Berman, David explains how crude oil is rising: 

“James Hamilton at Econbrowser rejects the notion that the Federal Reserve’s promise to maintain exceptionally low interest rates through 2014 is the biggest reason for the price gains. After all, you would think that low rates would affect all commodities – but crude oil seems to be in a world of its own. 

Instead, he has an interesting chart showing the rise in the number of Google searches for “Iran war.” Curiously, they have spiked since October, coinciding almost perfectly with the rise in the price of oil. Meanwhile, he points to improving U.S. economic conditions, subsiding concerns about an oncoming European financial crisis and a rising outlook for Asian economic activity – all of which could be giving oil a lift.”

A good thing to remember is that crude oil prices are not always positively correlated, as we noted in a previous post: Gas Prices & Crude Oil: An Up & Down Relationship.  

At this time of year, there is also a seasonality factor coming into play. The anticipated summer driving season is quickly approaching, which is when gasoline demand really starts to ramp up. To sum up, the largest affect on gas prices at the pump today are the cost of crude oil pricing and the anticipation of the increasing demand going into the summer driving season.  

Have more questions? Let us know!

- Julie S.

Comments

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Greg

why is the gas 140.8 litre in Vancouver and 116.8 in Victoria (March 12 2012)?

Petro-Canada

Hi Greg, thanks for your question. Along with factors like the price of crude oil, weather and seasonality, supply and demand contribute to prices you see at the pump. Specifically, local market conditions like size of market, overall demand and competitive price play a large role which is why you are seeing price differences between Victoria and Vancouver.
- PumpTalk Team

Ted Harlson

Regarding the major retail prices at the pump, in the Toronto area, there used to variations in gas prices with differences of several cents per litre. However the last few years, all gas prices go up or down in almost perfect tandum. If gas goes up one cent with Petro, as an example, Esso miles away also goes up at the same time. The prices are centrally controlled. By what? By who? What new government rule makes these prices frozen and locked together?

Petro-Canada

Hi Ted, gas prices are not centrally controlled, however they are influenced by the items we discussed on this post along with local competition. There is an excellent PumpTalk video which helps explain this a bit more in detail. We hope this helps. http://youtu.be/9vyH3z4fVzM

- The PumpTalk Team

chris

I understand that the price of crude oil and refining contributes to gas prices. What I don't understand is how the prices can raise even when it is not a new shipment of gas. They recieved their shipment at one price, how is it the price can change every day even though the shipment that was recieved is still being used. This is not right. A mechant cannot up the prices until a new shipment arrives at a higher price, what gives he gas stations a right to raise prices every day while still using the gas that came in at a lower price.

Petro-Canada

Hi Chris, Thanks for your question. Although the price of crude oil is one of the largest determining factors of gasoline price, a number of other factors including local competition play a role as well. There is an excellent PumpTalk video which helps explain this a bit more in detail. http://youtu.be/9vyH3z4fVzM.
We hope this helps in answering your question.

- The PumpTalk Team

mutuelle devis

hello, I really like your article, but I can't see the pics, is it a problem with my browser ? (I'm using firefox)

Thanks,
See you,

Julie

Petro-Canada

Hi Julie, sorry to hear you are having trouble. We're note sure why you can't view the pictures, but here is a link that may help you with the issue:
http://kb.mozillazine.org/Images_or_animations_do_not_load
- The PumpTalk Team

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