Could pump price volatility
be consumers’ best friend?

Carol Montreuil

Carol Montreuil is the Canadian Fuels Association’s Vice-President, Eastern Canada.

Given the importance of transportation fuels in our everyday lives, and their impact on our family budgets, it is understandable that Canadians remain concerned about retail gasoline prices and their volatility. We believe that more information can help clarify that consumers do benefit from retail price movements in a free market.

Making peace with the volatility issue requires that we acknowledge three factors.

 

1. Crude oil prices and taxes
These are two variable and significant price components over which retailers have no control. Crude prices are driven primarily by international geopolitical and global economic activity; taxes are determined by federal, provincial, and in some instances, municipal governments. Together, these two components account for more than 80 percent of the pump price.

 

2. Price comparisons with other jurisdictions
Given how taxes vary by jurisdiction, price comparisons need to be made with tax portions excluded. Independent analyses have repeatedly shown that when tax-excluded pump prices are compared to neighbouring U.S. jurisdictions—and other developed economies—Canadian prices are among the lowest in the world.

 

3. The alternative to a volatile yet free retail market
The alternative is one in which governments intervene to regulate prices on a weekly or monthly basis. Such models exist in the Atlantic provinces, for example, and elsewhere around the world. These models have been studied independently and at great length. While reducing the frustrations of price volatility, these price-control models consistently drive up pump prices for consumers. In effect, price regulation or “price insurance” is a trade-off: less volatility at the expense of higher average gasoline prices.

Between crude oil costs and taxes, jurisdictional inconsistencies, regulated or unregulated market structures, it’s easy to see why the daily interaction of these three factors makes for confusing price differences. Yet when these factors are understood, retail gasoline price volatility can be viewed through a consumer-friendly lens that shows a free market producing competitive prices for Canadians.