Fuel Focus, October 10, 2006: Retail Gasoline Overview

The average regular gasoline pump price in selected cities across Canada for the four week period ending October 10th was 88 cents per litre, a decline of almost 2.2 cents per litre from two weeks ago, and down from the $1.11 per litre recorded during the same period in 2005.

The continued decline in retail gasoline prices is mainly due to a dramatic decrease in crude oil prices. A number of factors, such as higher gasoline inventories and reduced demand, have also contributed to the steady downward pressure on prices and this trend should continue, barring any unanticipated supply problems.

The four-week average crude oil price of 43 cents per litre declined 2.8 cents per litre since the last report, a decrease of 6.8 cents per litre from the same period in 2005.

Overall the average four week refining and marketing margin portion of the pump price increased approximately 1 cent per litre, partially offsetting the decline in crude prices. Margins increased 0.6 cent per litre in the western provinces (Vancouver to Winnipeg) while they declined 0.6 cent per litre in eastern provinces. Excluding taxes, Montreal registered the lowest pump price at 52 cents per litre and Whitehorse the highest at 85 cents per litre.

Figure 3: Regular Gasoline Pump Prices in Selected Cities 4 Week Average (September 19 to October 10, 2006)

The Connection between Retail Gasoline and Wholesale Gasoline Prices

Generally, when the price of gasoline goes up or down the explanation often heard is that it is tied to the crude oil price gyration. While retail gasoline prices are driven by crude oil prices, it is the wholesale gasoline market that has the largest impact on retail prices. Gasoline is a commodity in its own right and, just like crude oil, its price reacts to supply and demand pressures in local and North American markets. Wholesale gasoline prices can also be influenced by speculator reactions to political news or weather events that could change the supply or demand for gasoline. In addition, gasoline is a commodity that flows freely between Canada and the U.S., so Canadian wholesale prices are tied closely to the U.S. gasoline prices. Any significant disruption in gasoline supply in the U.S., a market 10 times the size of Canada, can have an impact on wholesale prices throughout North America. Last year’s weather-related events are a good example of how the shutdown in a small percentage of the refining capacity created a tight supply situation in North America and affected Canadian wholesale gasoline prices.

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