CAA - Canada's Rising Gas Prices

The CAA wants motorists to know what they are paying for – and pay – when they fill up at the pumps. Here are some of the most often-asked questions about gasoline pricing.

A. The CAA urges gasoline retailers to post the components that make up the pump price on every gasoline pump in Canada.

Crude oil prices are determined in much the same way as other stock or commodity prices around the world – when inventories are low or demand increases, prices rise. Canada, like most other oil producing countries, does not regulate the price of crude oil, allowing Canadian-produced crude oil to sell at the prevailing world price. Non-OPEC countries like Canada and the U.S. do not have the short-term production capacity to make up for any decline, natural or otherwise, in inventory, making OPEC influential in crude trading markets – and over the longer term, affecting the price of gasoline.

Another factor is the rise of global and regional commodity markets for refined products such as gasoline. Commodity buyers buy wholesale when gasoline is cheap, and sell for a profit when there is greater demand. This can trigger abrupt changes in regional markets – and the price you pay at the pump.

A. That depends on where you live in Canada and where you buy your gasoline. Taxes are usually responsible for the large component of gasoline prices. On average, Canadian taxes represent 30 to 40 per cent of what you pay at the pumps.

The federal portion consists of the excise tax, which is 10 cents per litre. In addition, the Goods and Services Tax, which is 5 per cent (as of January 2008), is added to the total pump price, and is effectively a tax on tax. (In the Atlantic, the GST is represented as a portion of the Harmonized Sales Tax.)

The provincial tax portion varies from province to province. Provincial taxes range from 6.2 cent per litre in the Yukon 20.4 cents in Prince Edward Island. In some urban centers, such as Vancouver and Montreal, an additional transit tax is levied.

Studies have shown that federal and provincial governments receive over $14 billion per year in gasoline taxes. Federal taxes collect an estimated $7Billion ($5B from excise taxes and an estimated $2Billion in GST) go into general coffers and help to fund a range of programs. Provincial gasoline taxes collect over $7.8Billion that are allocated as determined by each provincial jurisdiction.

A. Studies have shown that the changes in gasoline prices are a result of competition within the market and the cost of the product. Gasoline prices are also affected by delivery costs, and supply and demand. Statistically, gasoline prices tend to rise throughout the summer months because of increased summer travel, and consumers may notice increases on long weekends, because that is when they drive more and longer – and therefore have to fill up their tank more often.

In addition, market competition leads to gasoline price wars, gasoline discounts and other consumer incentives. The posting of gasoline prices on large outdoor signs enhances consumer awareness of price swings and competitive costs.

Q. Why do gasoline prices offered by different retailers change at the same time?

A. This is a direct result of competition. When one retailer changes its price, others quickly react to attract their share of price conscious gasoline consumers.

Q. Why do gas prices vary between provincial/territorial regions and between cities?

A. Several factors create a variance between provincial/territorial regions in Canada and between cities. The cost of transportation to individual markets, differences in provincial and municipal taxes, sales volumes, and the level of competition in a given market can all effect gasoline pricing.

Studies have shown that consumers in larger centres often experience lower prices because retailers sell larger volumes of gasoline. This allows them to compete at lower price levels and still cover their operating costs.

A. This question has been studied for several years through a number of provincial and federal inquiries. The findings continue to show that consumers benefit from the current competitive market system. In the year 2000, the Conference Board of Canada conducted a study – The Final Fifteen Feet of Hose – funded by Natural Resources Canada and Industry Canada, which concluded that Canadians are well served by the current market system that determines gasoline prices. As the market currently exists, consumers can choose the station that is offering the best price and other services. They also have the option, if they feel retail gasoline outlets are operating counter to the Competition Act, to contact Canada’s Competition Bureau to complain.

Q Do gasoline prices rise just before weekends, long weekends, and summer holidays?

A. Studies have shown that prices tend to rise throughout the summer months as a result of increased travel. The study conducted by the Conference Board of Canada in the year 2000, reported that while prices are likely to rise mid-week (the time when many dealers attempt to restore pricing after competitive pricing activities), there is no pattern of increases directly related to long weekends.

Studies have shown that Canadians experience some of the lowest gasoline prices in the world.

Countries around the world are facing higher fuel prices. The following link to European gasoline prices is provided by the Automobile Association (AA) in the United Kingdom.

The latest information, updates and archive information can be obtained online at http://www.aaroadwatch.ie/eupetrolprices/default.asp.