Your questions about gas prices answered, part 2

May 12, 2016   | Categories: Canadian Fuels Association, Economy, Energy, Fossil Fuels
With the summer driving season nearly upon us, we thought it would be helpful to answer some frequently asked questions about gasoline prices. Last week, we tackled questions about whether prices rise before long weekends, why gas prices don’t necessarily fall along with crude oil prices, and why different communities may have different gas prices.
For more answers, we turned again to Jason Parent, vice-president, consulting at Kent Group Ltd. The company provides independent data and analytics pertaining to the petroleum industry as well as consulting and other services.
Parent’s specialties include regulatory analysis, petroleum market and price/margin analysis, forecasting and performance benchmarking.
Here are more of the most frequently-asked questions, answered by the Kent Group expert.

Gas prices always go up in the spring. Why is that?

The rise in spring gasoline prices generally coincides with first, the switchover to more expensive summer grades of gasoline (adjusted for RVP – a measure of volatility -- by reducing butane content), then followed by a marked increase in demand for gasoline in the late-spring and summer months. This rise in demand often puts pressure on gasoline supply, and typically drives up the wholesale price of gasoline over that time.

Why doesn’t the government break up big oil’s monopoly on setting gas prices?

‘Big oil’ has actually become increasingly detached from retailing in Canada over the last decade. The Kent Group’s Retail Site Census shows that only 15 percent of all gas stations in Canada are under the price control of one of the three "major" oil companies (Suncor, Esso or Shell). Conversely, nearly half of the sites are price-controlled by an independent site operator or dealer, meaning that there is significant diversity in who controls retail prices in Canada.

I’m close to a provincial border. Why is gas cheaper on the other side?

It is likely that the gasoline is cheaper on the other side because of the different levels of taxation in each jurisdiction. Once you strip away the tax and retail margin components of gasoline prices, the disparity of prices from city-to-city, or even province-to-province, are often negligible.

Why is gas so much cheaper in the United States?

Similarly, this is primarily a function of varying levels of taxation. Retail fuel in the U.S. is taxed far less than any Canadian market. The exchange rate-adjusted wholesale price differences between proximate U.S. and Canadian markets (for example Buffalo, NY and Toronto, ON) are very small.
Want to know more? Check out last week's gas price FAQs
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