Canadian Fuels Association - What’s up with gas prices?
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1 canadianfuels.ca Canadian Fuels Association FUEL fundamentals What’s up with gas prices? Few issues spark spirited discussion among Canadians more than gasoline prices, especially price volatility. Contrary to popular belief, gasoline is one of the most competitively and transparently priced consumer products. Transparency is a hallmark of gasoline pricing. At every level of the value chain, price components are available for the public to see. Gasoline is one of the most transparently priced products consumers purchase. Four factors affect the price at the pump: Crude oil Crude oil is a global commodity. Its price is a function of commodity traders’ assessments of supply and demand. Many factors can affect supply and demand, such as economic conditions, natural disasters and geopolitical or military events, especially in major oil-producing regions. The daily trading price and future price for various types of crude are posted on commodity exchanges, quoted in newspapers and available to virtually anyone on-line. Wholesale price of gasoline Like crude, gasoline is also considered a commodity. Therefore, its wholesale price is determined through daily trading activity. However, unlike crude, the daily trading price of wholesale gasoline, while publicly available, is rarely quoted in the media. Although crude oil price is one factor affecting wholesale prices, other factors also come into play. These include incidents at refineries, inclement weather and temporary surges or declines in demand. All these factors can affect the supply and demand balance for wholesale gasoline. As a result, prices can increase even when crude prices decrease. Retail mark-up Retail mark-up is the difference between wholesale price and pump price, less the tax. For 20 years, the retail mark-up on gasoline in Canada has remained virtually stagnant in nominal terms and has declined in inflation-adjusted terms. Consumers are in the driver’s seat Marketing gurus would describe gasoline as a low-involvement purchase. Unlike most other goods consumers buy, they are less interested in gasoline’s colour, smell, taste or other characteristics. As a result, the focus tends to be exclusively on price. This and the fact that there is no other product for which consumers can comparison shop at 60 kilometres an hour without leaving their vehicle, make gasoline a unique purchase. Consumers’ purchasing decisions are the final factors in determining pump prices and making gasoline one of the most price-transparent and price-sensitive consumer products in Canada. Pump Price Components Taxes Distribution & Marketing Refining Crude Oil Source: Kent Marketing Services 2013, regular gasoline 50% 13% 6% 31%
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Transcript of Canadian Fuels Association - What’s up with gas prices?
1canadianfuels.caCanadian Fuels Association
FUEL fundamentalsWhat’s up with gas prices?Few issues spark spirited discussion among Canadians more than gasoline prices, especially price volatility. Contrary to popular belief, gasoline is one of the most competitively and transparently priced consumer products.
Transparency is a hallmark of gasoline pricing. At every level of the value chain, price components are available for the public to see. Gasoline is one of the most transparently priced products consumers purchase.
Four factors affect the price at the pump:Crude oilCrude oil is a global commodity. Its price is a function of commodity traders’ assessments of supply and demand. Many factors can affect supply and demand, such as economic conditions, natural disasters and geopolitical or military events, especially in major oil-producing regions.
The daily trading price and future price for various types of crude are posted on commodity exchanges, quoted in newspapers and available to virtually anyone on-line.
Wholesale price of gasolineLike crude, gasoline is also considered a commodity. Therefore, its wholesale price is determined through daily trading activity. However, unlike crude, the daily trading price of wholesale gasoline, while publicly available, is rarely quoted in the media.
Although crude oil price is one factor affecting wholesale prices, other factors also come into play. These include incidents at refineries, inclement weather and temporary surges or declines in demand. All these factors can affect the supply and demand balance for wholesale gasoline. As a result, prices can increase even when crude prices decrease.
Retail mark-upRetail mark-up is the difference between wholesale price and pump price, less the tax. For 20 years, the retail mark-up on gasoline in Canada has remained virtually stagnant in nominal terms and has declined in inflation-adjusted terms.
Consumers are in the driver’s seatMarketing gurus would describe gasoline as a low-involvement purchase. Unlike most other goods consumers buy, they are less interested in gasoline’s colour, smell, taste or other characteristics. As a result, the focus tends to be exclusively on price.
This and the fact that there is no other product for which consumers can comparison shop at 60 kilometres an hour without leaving their vehicle, make gasoline a unique purchase.
Consumers’ purchasing decisions are the final factors in determining pump prices and making gasoline one of the most price-transparent and price-sensitive consumer products in Canada.
Pump Price Components
Taxes
Distribution & Marketing
Refining
Crude Oil
Source: Kent Marketing Services 2013, regular gasoline
PUMP PRICE COMPONENTS
Crude Oil 50%
Refining 13%
Distribution& Marketing 6%
Taxes 31%
Source: Kent Marketing Services2013, Regular Gasoline
2canadianfuels.caCanadian Fuels Association
Updated 02/26/2014
For further information, please contact Canadian Fuels Association [email protected] 613.232.3709
Retail markup covers all operating costs and some profitWhen wholesale conditions change rapidly, pump prices can be volatile. Dealers may suddenly change prices, up or down, striking a delicate balance between staying price competitive and maintaining a viable margin. Most retailers are independent business men and women who make their own pump price decisions, even though they may do business under a major marketer’s brand. Local pump price volatility is a sign of a competitive marketplace.
TaxesPump prices include federal and provincial taxes, and in some municipalities there is an additional local tax. Tax differences are one reason why pump prices differ across Canada—and are a key reason why pump prices are generally lower in the US than in Canada. Canadians pay on average 39 cents per litre in fuel taxes at the pump, while in the US, the average tax is 17 cents per litre.
Federal and provincial taxes based on average pump price for December 2013
