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Fuel Focus, October 10, 2006: Refining and Marketing Margins

As illustrated in Figure 5, the refining and marketing margins recently lost some of their earlier strength as demand for gasoline wanes. The latest margin declines are indicative of ample gasoline supplies which correspond with the end of the summer driving season and the relatively stable situation in the world crude oil markets.

Refining margins, defined as the difference between the posted rack (wholesale) price of gasoline and the crude oil price, are indicative of the gasoline supply situation and other local market conditions. In turn, the local market conditions can have a considerable impact on short-term wholesale prices. This is due to the fact that gasoline has very few substitutes, especially in the short term.

Margins must cover, among other things, the costs associated with transporting product through the distribution system. Some of the distribution challenges arise from the fact that petroleum products are refined in only a few geographic regions but they are consumed all across Canada. Of the western provinces, only Alberta and Saskatchewan produce more products than they consume.  Manitoba, parts of British Columbia and most of the territories are supplied primarily from the three refineries in Edmonton. As a result of the distance the product must travel margins are higher in these areas.

Figure 5:  Refining and Marketing Margins (Four Week Rolling Average)

-------Refining Margin                Marketing Margin