Operating costs and taxes
While the type of crude oil affects the price of gasoline worldwide, other factors are uniquely Canadian.
Exchange rate
Oil is usually priced in US dollars, so the exchange rate has an effect on the price of gas in Canada. Buying oil or gas becomes more expensive when the value of the Canadian dollar against the US dollar declines, and that affects gas prices.
Fuel retailing
Consumers buy gasoline from retailers, and those retailers take a profit too. Low prices attract more customers, but higher prices increase profit margins and help offset retailers’ costs. Retailers sometimes change gas prices several times in a day because of changes in supply and demand:
- Retailers can raise prices when demand is strong, like before a long weekend when drivers need to fill up.
- Retailers can lower prices to attract customers during quiet times, like late at night.
Taxes
Fuel taxes also affect gas prices and are one reason why the price at the pump varies across Canada. Fuel taxes include provincial and federal sales taxes and carbon taxes. A few municipalities have an additional tax on gas.
Pipelines
Canada has an extensive network of pipelines that transport oil. The network includes nearly 20,000 kilometres of interprovincial oil pipelines that are federally regulated as well as many other smaller pipelines that don’t cross provincial borders. The largest pipelines cost billions of dollars to build and can take decades to pay off. Some are owned by companies that produce oil, and others by pipeline companies that charge fees to use them. In both cases, pipeline costs are built into gas prices.
Refining
Refining costs include the costs of turning raw materials into gasoline and the net refining profit margin. The profit margin is the difference between the price the refiner sells its final product for and how much it cost the refiner to make that final product. While refining costs contribute to the price of gasoline, refineries can affect pump prices in other ways.
The price of gasoline can go up when refineries unexpectedly stop operating. Prices don’t usually increase when refineries close for planned maintenance. But unplanned closures can limit the supply of gasoline—especially when multiple refineries are affected—and lead to a sudden increase in gas prices. Extreme weather events sometimes cause this to occur. For example, hurricanes have forced unplanned closures of major refineries located along the US coast of the Gulf of Mexico.