Why are the prices in western Canada (Ex:Winnipeg/Calgary/Edmonton) so much lower than the rest of the country & why don’t they experience the same volatility?
The West, excluding British Columbia, benefits from a healthy number of refiner-suppliers who can easily handle any increase in demand, except when gasoline or crude futures become exaggerated in price as was the case in 2007/2008. Eastern Canada has witnessed a serious and disturbing decline in refiners over the past several years and, as a result, Eastern Canada is a net importer of petroleum products and therefore more immediately susceptible to world price shocks, while the West is amply supplied and exports vastly more product than it imports. This allows the somewhat dubious boast that Canada is a “”net”" energy exporter. That’s cold comfort for the many Canadians who are not geographically positioned to benefit from that advantage.
To make matters worse, TGPT quotes West Texas Intermediate values for oil. However, half of Ontario, all of Quebec and the Maritimes gets crude from the Brent, North Sea oil. That trades at $25 or more per barrel, or 15 cents per litre (on average) more than WTI. Grimly, it also shows that while we paid heavily to have cheaper crude come from Alberta since the late 1950′s, the reality is that the oil industry coupled with Ottawa’s timidity, has thrown away this valuable east-west infrastructure and exposed eastern Canada to world price based turmoil.
Why doesn’t the price of gas decrease with the market similar to the way it increases?
Canadian refiners are under no competitive pressure to pass on changes that occur daily in the markets when they benefit consumers. As we all too well know, the very hint of increase in gasoline markets always leads to an instantaneous increase, while a market decrease is not always likely to be passed with the same diligence.
Most importantly, the fact that Canadians tend to pay 3 to 10 cents a litre above world markets for fuel at the wholesale (rack) ensures the price we pay is always above world price. It’s also important to note that world market price for petroleum fuels represents a “”ceiling”" reference price for US refiners, while it is considered a price “”floor”" for Canada’s uncompetitive refiners.
Is US/CHINA oil demand a reason for price increases?
Total oil consumption for 2009 averaged 18.7 mb/d (4.0% year-on-year) and is expected to average 18.9 mb/d in 2010 (+0.7%).
Total oil consumption for 2009 averaged 8.4 mb/d (+6.6% or +520 kb/d) and is expected to average 8.7 mb/d in 2010 (+3.6% or +300 kb/d).
Global demand for oil in 2009 was approximately 84.9 million barrels per day. Of this number, the United States alone consumes 22% (18.7 million barrels per day) while China remains well behind at less than 10%.
By doing our math correctly, assumptions about China increasing its consumption of crude at 3.6% (300 000 barrels per day) in 2010 pales in comparison to last year???s US decline in consumption of 4% or 748 000 barrels per day.
Why is gas cheaper in Ottawa than Toronto?
Ottawa’s gas retailers withstood and survived an era in the mid 1990′s when price inversions and price discrimination by the independents’ very supplier/marketers claimed the lion share of unbranded independents in Toronto and London. This decisively proved the worthlessness of Canada’s competition law.
Unlike Toronto’s independents, Ottawa retailers could also count not only on their proximity to a network of terminals and refiners in the Montreal region, they could ??? until recently ??? turn to an independently owned fuel terminal in Ottawa (Coastal) which allowed a modicum of competition and choice at the wholesale level. Coastal did not operate retail gas stores.
Strong independent chains and spillover from pro-active legislation by Quebec to protect independents, guaranteeing them a basic margin (effectively making illegal price inversions), gave Ottawa area retailers more confidence and flexibility to charge lower retail margins than those we now see in Toronto ??? where the norm is 7 cents vs. 5 to 6 cpl in Ottawa. In fact, while average retail margins for premium grade (91 octane) in Ottawa is 8 cents, it is virtually double that, at 15 cents in Toronto!
Toronto has no refineries and therefore relies on supply controlled by only 3 refiner/marketers: Esso, Shell and Sunoco. Not only do these dominant suppliers ??? with their own…
Why are prices cheaper in Cobourg/Peterborough/Orillia than in the GTA?
Invariably, the price for fuel in the areas surrounding the GTA tend to have a 5 to 10 cent advantage over Toronto. This is, in no small part, due to refiner marketers like Ultramar selling gasoline on a consignment basis, which guarantees their branded retailer a set margin no matter what the street price is.
This means that while other competitors ??? most likely the mom and pop independents ??? must charge the wholesale price, plus taxes and a retail margin, the branded consigned seller can offer a lower price and undercut the independent competitor in the same relevant market. It’s important to stress here that when a refiner is making up to 20 cents per litre refining gasoline, the temporary loss of a 7 cents a litre retail margin is a small foregoing of revenue when the ultimate prize is inevitably the loss of true independents in a given market, thus gaining market share.
It???s short term gain for motorists in those less travelled areas, but as we have seen in most larger urban centres, it leads to long term, lockstep pricing pain.
Why is gas in Windsor cheaper than Toronto?
This is due to the fact the price for fuel, and its related competition over the Ambassador Bridge, no longer allows for the excessive pricing we see in Toronto, or London for that matter.
Conversely, the GTA pays (on average) 6 cents a litre ABOVE the world benchmark for gasoline, hence why we call it the rip-off. Furthermore, the retail margin in Toronto is 7 cents a litre versus 4 in Windsor.
There is also a combination of below cost selling or a local market responding to Detroit’s wholesale prices, which are 2 cents per litre BELOW the world benchmark for gasoline.
How can different gas stations (theoretically competitors) charge the same price, and change so synchronously?
In Canada there is no competition among refiners given there are so few left.
In the United States, identical pricing at the pumps would trigger a vigorous and successful anti-trust claim. For this reason, amongst others, American’s are treated to retail gasoline competition as well as considerable daily competition in wholesale (rack) price that varies in most markets by 2-5 cents a litre. As we know, the exact opposite is true Canada in many respects because we allowed Big Oil a hand in re-writing our Competition law in 1986
Cost of Crude: Price History
We’ve had several requests to display what last years crude price was (on a given day) similar to how we display last years retail price. In the coming months we will provide this feature.
What’s delaying us from publishing this information is that we currently have exact crude data going back 7 months – since we started monitoring/retaining this information. As such, we’re a little shy on the data. Once we have a full year’s worth of information we will publish this for you daily. TGPT
Why are we paying $1.25 (avg) per litre when our dollar is $1.03 and oil is $90!? We were paying roughly the same price for fuel in 2008 yet our dollar was worth $0.90 and oil was $145 dollars.
In 2008, crude futures were manipulated and excessively speculated to increase their value despite their total disconnect with market fundamentals (supply and demand). As we now know, this was driven by an extensive list of players including the now infamous AIG and Lehman Bros. These entities, without any capital requirements, bet large and moved crude up as a result of unregulated platforms.
Their actions, and those of many others, gave rise to the super bubble mirroring the purchase frenzies in the financial markets. Subsequently, refiners were left holding the bag with no margin as crudes rapid rise outpaced the secondary market. Today that distortion is now playing out both in the crude and gasoline markets where each is priced by at least $20 a barrel and 25 cents per litre respectively.
The dollar factor, although important, considering its purchasing power in US terms is about 8-10% stronger than in 2008, is mitigated (in Ontario for example) by the 8% provincial tax in the form of the HST. The result is that, in Ontario at least, the Canadian currency valuation is effectively neutralized.