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Fuel Focus, August 29, 2006: Refining and Marketing Margins

Refining margins continue to follow the seasonal pattern as seen in the historical graph below, namely rising in the summer and dropping in the winter. The higher costs seen over the years reflect the market conditions under which the refiner operates such as new environmental standards associated with producing low-sulphur fuels and concerns over tight supply conditions in a particular market.

Indeed, all gasoline sold in Canada and the U.S. has to meet certain quality and environmental standards. Traditionally these standards are harmonized between the two countries which have resulted in a continental wholesale market.

The downstream margin represents that portion of the price of gasoline over which the refiners and marketers have the ability to exercise some influence. This margin must cover the costs associated with the refining of the crude oil, transporting the products throughout the distribution system to the demand centres and marketing the product, while providing the refiner and the gasoline station retailer with a reasonable rate of return on their capital.

The marketing margin can differ significantly from city to city and region to region. Although this margin represents a small fraction of the cost of a litre of gasoline it attracts the consumer's attention because it is related to the price posted by service stations across the country. Ultimately, it is the local market conditions in each area which determines the retail pump price and the margin available to the retailers.

Figure 5:  Refining and Marketing Margins

-------Refining Margin                Marketing Margin