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What’s Behind Gas Prices?

You likely saw the articles on your favourite news sites yesterday, or heard the radio reports on the way to work. The price of crude went up around 3%, largely based on the news of the Iraq insurgency and the potential of oil supplies being disrupted. And when crude goes up, the cost of gasoline at the pump is at risk of rising as well.

You’ll often hear examples of the factors which effect the price at the pump. Natural Resources Canada lists the following price influencers:

  • Changes in world crude oil prices
  • Availability of supply to meet demand
  • Local competition among retailers
  • Seasonal demand
  • Inventory levels

Given the impending water cooler talk, we thought it may be helpful to provide a little context on a few of those factors.

Commodity Market Fluctuates Daily
Gasoline and crude oil are commodities - they are bought and sold at prices determined by commodity markets. It's like when we plan a trip to the US: depending on the day, we will pay a different exchange rate for our Canadian dollars; that exchange rate is determined by currency markets.

Similarly, on the commodity market, the wholesale price of gasoline changes daily, depending on the market's reaction to the price factors above.

Effect of Wholesale Gas Prices on the Price at the Pump
Wait, why do we care about wholesale prices for gasoline rather than the retail price? At Suncor, we produce and sell gasoline from our refineries, but we also purchase gasoline on the wholesale market to round out our supply and make sure that all of our stations (and customers!) have the required fuel. The wholesale market's prices are set on a daily basis (you can track the daily wholesale market price on Natural Resources Canada's site).

So for all the gasoline that we produce and sell, we follow the accepted daily wholesale price set by the market. You can read more about the relationship between gas prices and commodity prices in a previous PumpTalk post.

- Corinn S.


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