Two Months of Volatility: What’s Behind Fuel Prices in Canada Right Now
Over the past two months, global energy markets have been shaped by escalating geopolitical tensions in the Middle East, including disruptions linked to the closure of the Strait of Hormuz – one of the world’s most critical oil transit chokepoints. With a significant share of global crude oil moving through this narrow passage, any disruption has immediate ripple effects across international markets.
As tensions mounted, global crude oil and product prices – diesel and jet fuel particularly – rose sharply and, just as importantly, became increasingly volatile. That volatility has translated directly into higher and less predictable gasoline and diesel prices for Canadians. While the price at the pump can feel local, it is largely shaped by global dynamics, and recent events are a clear example of how quickly international developments can affect daily costs across the country.
What’s driving prices
Crude oil is the single largest component of the price of fuels like gasoline, diesel and jet fuel.
“Crude price volatility due to recent tensions in the Middle East is the main factor behind recent increases,” explains Carol Montreuil, Vice-President, Eastern Canada at the Canadian Fuels Association. “A commonly used rule of thumb is that, all else being equal, a $1 change in the price of a barrel of crude oil can translate into roughly a 1 cent per litre change at the pump.”
But crude is only part of the picture. Fuel prices are influenced by a combination of factors, including:
- refining and production costs
- transportation and distribution logistics
- supply and demand dynamics
- taxes and environmental compliance costs
These elements interact continuously in market-based pricing systems, which means prices can adjust quickly as conditions change, and it is difficult to isolate one factor without considering the full picture.
Efforts to stabilize supply and prices
In response to supply concerns, coordinated releases from strategic petroleum reserves were undertaken shortly after the beginning of the crisis to help ease pressure on global markets. These types of actions have been used globally to help manage short-term supply and moderate price spikes during periods of disruption. But while they can provide temporary relief, they do not eliminate the underlying volatility tied to sustained geopolitical risk.
At the same time, seasonal factors have also played a role. Each year, Canadian fuel markets transition to summer gasoline specifications – a regulated requirement to reduce emissions. This shift, which must be fully in place by April 15, began working its way through the system several weeks earlier and typically adds some upward pressure on prices due to higher production costs.
More recently, the federal government introduced a temporary suspension of the excise tax on fuel, reducing gasoline prices by approximately 10 cents per litre and diesel by about 4 cents per litre as of April 20. Because these taxes are applied at the pump, the impact of this measure was immediate and visible to consumers.
The sector is neutral when it comes to taxation. Retailers adjust pump prices to reflect tax changes and collect and remit those taxes on behalf of governments.
“Since taxes make up a significant portion of prices at the pump, the temporary suspension of the excise tax is welcome relief for Canadians,” says Montreuil. “At the same time, given the current volatility in crude markets, it’s important for Canadians to understand that prices can quickly shift again depending on how global conditions evolve,” he adds.
Understanding the bigger picture
Together, these factors help explain the price movements Canadians have experienced recently: rising and volatile crude prices pushing costs up, seasonal fuel changes adding some pressure, and targeted policy measures providing some relief.
However, it’s important to recognize that volatility remains. Changes in geopolitical conditions – particularly in the Middle East – can quickly influence global crude prices and, in turn, fuel prices in Canada. While crude is a major driver, it operates alongside a broader set of variables that together determine the final price at the pump.
Keeping fuel supply reliable
In periods of uncertainty, one priority remains constant for the transportation fuels sector: ensuring reliable access to fuel for all Canadians.
“While we can’t control global prices, our people work hard every day to ensure Canadians can rely on our sector to supply the fuel they need to keep our economy moving,” says Montreuil. “With global uncertainty persisting, maintaining a stable and well-functioning system remains a top priority.”
Canada benefits from a strong and resilient fuel supply system, supported by skilled workers, abundant natural resources, complex infrastructure and a mature supply chain. These strengths help mitigate supply risks and ensure that fuel continues to be available when and where Canadians need it.
For more information
To learn more about how gasoline prices are set in Canada, visit:
Gasoline Prices – Canadian Fuels Association
To stay up to date on developments in the transportation fuels sector, visit https://www.fuelforward.ca and sign up for our weekly Engine 13 newsletter.
