Factors that affect gas prices at the pumps
Many drivers base their choice of gas station on price alone. Understanding important factors that affect the price of gas can help you make informed decisions as you choose where to fill your tank.
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- Gas stations often match each other’s prices
- Gas prices can change quickly
- Gas prices can be higher in some parts of Canada
- Differences between Canadian and American gas prices
- The prices of gasoline, crude oil, diesel fuel and home heating oil don’t always rise and fall together
Gas stations often match each other’s prices
Gas stations typically post their prices on large street-side signs. Since consumers are very sensitive to price, gas stations often strive to meet or beat their competitors' posted rates so they do not lose customers.
As a result, competing gas stations often charge similar or identical prices. Charging the same price is not illegal unless competing gas stations reach an agreement to do so.
Gas prices can change quickly
The fact that prices for gasoline can change quickly is generally an indication that competition is working.
Prices go up or down as retailers compete, and each tries to match what the other is charging.
Prices at the pumps also depend on the wholesale price that gas stations must pay their suppliers, which can change on a daily basis.
Price swings are also caused by changes in the level of consumer demand. Prices typically go up when demand is higher (for example, when more people are traveling) and go down when demand is lower.
Factors that affect the global or local gasoline supply also result in price changes. Prices typically go up when supply is reduced (for example, when oil refineries shut down for maintenance or due to a hurricane), and go down when the supply of gas increases.
Gas prices can be higher in some parts of Canada
There are a number of factors that can affect the final price of gas at the pumps from one region of Canada to another:
- All provinces and territories place different taxes on gasoline. Higher taxes contribute to higher prices at the pumps.
- Retailers in large cities usually sell more gas, which means they can charge less per litre and still make a profit.
- Local supply and demand conditions vary from region to region, including the number, size, and type of competitors. The presence of one or more aggressive price competitors in a local market may lead to lower prices.
- It costs more to transport gasoline to the pumps in some regions of Canada, such as remote areas that are far from major cities. These higher transportation costs will show up in the price of gas.
Differences between Canadian and American gas prices
Differences in prices at the pumps between Canada and the United States are generally due to our different currency values and tax rates.
When we factor in the currency exchange rate and remove the effect of different tax rates, Canadian and American gasoline prices are generally comparable. Canadian prices are sometimes lower than American prices.
The prices of gasoline, crude oil, diesel fuel and home heating oil don’t always rise and fall together
Gasoline prices generally track crude prices. However, there can be a delay of up to two months before decreases or increases in crude oil prices are passed along to consumers.
Unlike gasoline, the demand for home heating oil is seasonal, and the product is usually bought under contract from a supplier for an entire season, at prices that tend to be consistent.
The demand for diesel fuel, which mostly comes from truckers and farmers, is also relatively constant. Like with home heating oil, trucking fleets usually negotiate a diesel contract with one supplier. As a result, diesel prices tend to be more consistent than gasoline.
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