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Crude oil prices and the effect on gasoline prices

What determines the price of crude oil?

The price of crude oil depends on how much is needed by consumers and industry and how much can be pumped out of the ground at any given time. When there’s more crude oil available than needed by consumers and industry, prices tend to fall. Following September 11, 2001 for example, there were fewer people traveling by plane. The decrease in demand for air travel caused crude oil prices to drop for a short period of time.

Conversely, when consumers and businesses want more oil than is available, prices increase. Interruptions to crude oil supplies or even the threat of supply problems (such as political events or hurricanes) can force prices upward.

Need more information? See How World Oil Markets Work

If Canada produces more oil than it uses, why can't it set a "Made in Canada" price?

The immense size of Canada makes it more practical for some regions to import foreign crude oil rather than transport Canadian crude oil over long distances to their refineries. For example, the crude oil refined in eastern Canada comes from the North Atlantic and the Middle East, instead of Alberta. As a result, nearly half of the oil processed at Canadian refiners comes from other countries and is bought at a world market price. The price of gasoline follows the price of crude oil, so any increases or decreases in crude prices will affect the price you pay for gasoline.

Need more information? See How World Oil Markets Work

Why does the price of crude oil affect the price of fuels such as gasoline?

Crude oil is the raw material used to make fuels such as gasoline. An increase or decrease in the cost of oil changes how much refiners pay to buy and refine the oil into gasoline. Refiners sell their products to marketers and distributors who in turn pass on the higher or lower prices to consumers at the pumps.

How is gasoline made?

Gasoline is made from crude oil. Once the oil is taken out of the ground, it is taken to a refinery for processing.

Refining is a very complex process that uses heat, pressure and chemical reactions to turn crude oil into a variety of products such as gasoline, heating oil, jet fuel and diesel fuel. A major part of refining involves blending, purifying and fine-tuning gasoline to meet vehicle manufacturers’ specifications and government standards.