Gas prices: Unravelling the mystery of what you pay at the pump

Two weeks ago, when oil prices started to nudge higher, gasoline prices jumped by 15 or 20 cents a litre in some parts of Canada. It was a reminder that gasoline prices are something of a black box. But this aims to figure them out.

Getting to bottom of how a litre of gasoline is priced

Gasoline prices are volatile. CBC aims to track a barrel of from Alberta to the gas pump. (The Associated Press)

Two weeks ago, when oil prices started to nudge higher, gasoline prices jumped by 15 or 20 cents a litre in some parts of Canada.

It was a reminder that gasoline prices are something of a black box. They sometimes go up when oil prices go down — or vice versa. The price changes aren't always proportional to changes in oil.

There's the whole long weekend thing, when prices seem to rise just before Canadians are buckling up for a road trip.

So here, we do our best to track a barrel of oil from Alberta to a gas station in Toronto.

A few caveats

Before we begin, some of the numbers are estimates, since refiners don't like to share their profit margins.

As well, we use a barrel of Alberta oil, Western Canadian Select (WCS), which trades at a lower price than the more common type of North American oil (known as West Texas Intermediate, or WTI) because it's harder to refine.

Most WCS heads to the U.S., but some is refined in Canada. Since it's cheaper than WTI or Brent crude, there's a higher profit margin on it. That's one reason refiners would like to see the Energy East Pipeline get approved, to get access to that cheaper oil.

Nebulous correlation

The most interesting thing I learned in this was the wholesale gasoline market trades independently from the crude oil market. They're connected, of course, but wholesale market is affected by factors like the refinery strike in the U.S. right now.

That wholesale market is also influenced by speculators, who will trade the price of gasoline up or down to make a buck. That market is really the one to watch, when you're trying to figure out where gasoline prices are heading.

Thanks to Jason Parent of MJ Ervin and Associates, Roger McKnight of EnPro and Dan McTeague of Gasbuddy.com for helping sort through the thicket of information.

About the Author

Tracy Johnson

Business reporter

Tracy Johnson is the senior producer of CBC's western digital business unit. She's been a business reporter/producer with CBC on radio, television and online for 15 years. @tracyjohnsoncbc

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