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Gas Prices in Canada
Reasons For Price Increase
Some critics have pointed to price gouging by gas companies as the reason for increasing
gasoline prices. In August, Ontario Liberal MP Dan McTeague stated that Canada's refined
gas value is currently about 41 cents a litre. After provincial and federal taxes and
profit margins are included, Canadian gas prices should be closer to 74 cents a litre
than the current 80 cents and above. For Mr. McTeague, this suggested that gas companies
were artificially raising gasoline prices in order to reap profits.
However, recent studies undertaken by the Conference Board of Canada and the United
States Energy Information Administration concluded that there is no evidence of price
gauging by gas companies.
The Conference Board report examined the Canadian gasoline industry, in particular
the wholesale and retail sectors, and studied 16 Canadian cities using data over 10
years during the 1990s. Some important conclusions of the report are as follows:
- Increased Price of Crude Oil The Canadian gasoline industry follows
economic rules of global or continental supply and demand over which it has little
control. Current high gasoline prices are due to large increases in the world price
of crude oil.
- Greater Efficiency in Gasoline Industry - Changes in the industry
over the past ten years have led to increased efficiencies that have been passed on
- Price Volatility The volatility in gasoline prices is both the
result of the retail gasoline industry's competitive nature and of the volatility
of crude oil prices.
- Long Weekend Price Gouging There is no empirical proof that
gas prices increase before long weekends. When retail margins are perceived to be
low in the marketplace, there are often attempts to increase prices in the middle
of the week. Gasoline prices, therefore, are just as likely to go up before any weekend
of the year.
of Canada Report on Gasoline Retail Pricing PDF
Energy Information Administration Report on California Gasoline Prices PDF
Factors in Price Increase
The long-term trend of rising gasoline prices is due mainly to rising prices in crude
oil, which is set by international markets and oil exporting countries.
The recent spike in gasoline prices is a reflection of current market factors that
have resulted in a rise in demand and a decline of supply and thus a rise in price.
Some of these factors include:
- Oil Supply Disruptions Augusts blackout in Eastern North America
disrupted many supply lines and closed five oil refineries in Ontario and two in the
United States. There was also a rupture of a major pipeline in Arizona, which produces
238,000 barrels of oil a day.
- War and Political Instability Global crude oil prices have been
elevated for several weeks because of political turmoil in Iraq, Nigeria, and other
major oil producers.
- Low Oil Inventories The past harsh winter decreased inventory
in oil refineries across North America, resulting in low supply levels.
- High Summer Demand Gas demand typically rises in the summer.
However, the 2003 summer has exceeded traditional increases in both Canada and the