The difference in gasoline prices across Canada has hit its widest point in a decade because supply problems in the crude oil market have thrown the regular rules out the window, according to a report released today.
The Statistics Canada report released Friday shows how wildly different prices for crude oil that refineries across the country must pay are leading to drastically different pump prices in different parts of the country.
The Western world's two largest benchmarks for oil are Brent and WTI. The former is named after the Brent oilfield under the North Sea between Britain and Norway, whereas WTI stands for West Texas Intermediate and essentially refers to the type of oil extracted from the Gulf of Mexico.
Both are favoured for their purity and ease of processing compared to other types of oil. And for eons, the price of either one was a good proxy for "the price of oil" because they moved in lockstep with each other.
As those two oil prices remained stable, so did gasoline prices for the most part. "For much of the last decade," Statistics Canada said, "gasoline prices have changed at a more or less similar pace across the provinces."
But starting in about 2010, Brent and WTI began to move in different directions, dragging pump prices with them. WTI tends to move in relation to North American factors like demand from drivers during the summer, economic growth and hurricanes on the Gulf coast. Brent, meanwhile, tends to react to things like the health of Europe's economy and conflict in oil-producing nations like Libya.
Although there's talk of pumping Alberta oil east, for the moment refineries in Eastern Canada generally use Brent, while those in the West process WTI or other North American-based oils. (Oilsands oil mainly gets pumped south to U.S. refineries before being sent back north as finished gasoline.)
So despite Canada's status as an emerging oil-rich energy superpower, the gasoline you fill up your car with in most parts of the country doesn't necessarily originate here.
In general, gasoline prices have increased at a slightly faster pace in Central and Eastern Canada than they have in the West, Statistics Canada says, which has led to the record gap in gasoline price indices in different parts of the country.
"These challenges are linked to the increasing production of crude oil in North America and the fact that many of these oils are 'landlocked.' That is, they must travel by pipeline and thus cannot easily reach global markets," the agency says.
The gap between WTI and Brent has seesawed to record highs of late, and that's playing havoc with the price of gasoline as refineries have to adapt to wildly different input costs.
Brent crude was trading for $113.36 US per barrel on Friday, while WTI was changing hands for much less, $88.21 per barrel.
Fuel tracking website GasBuddy.com showed Friday that Canadians are paying different rates depending on where they live. The cheapest average gas price in the country is Alberta, where it's $1.02 a litre. In Saskatchewan, it's $1.14. In Ontario, it's a bit over $1.22, while Quebec residents are paying an average of $1.34.
In Nova Scotia, the average price is almost $1.29 a litre, while the most expensive gasoline in the country is in the Northwest Territories, where the average litre sells for almost $1.43.
In addition to crude oil supply, other factors are fiddling with pump prices. Major urban centres tend to see gas prices change quicker in relation to oil price movements, because they tend to use much more fuel. Prices in rural areas tend to lack oil price movements because of lagging demand.
In Atlantic Canada, many provinces regulate the price of gasoline, which can also cause gasoline prices to move in the opposite direction of whatever any given oil price is doing at the moment.
Gas prices in the summer are generally higher because of increased demand, and that's when refineries change the chemical composition of their fuel after long Canadian winters.
"Understanding the factors that influence gasoline price movements in Canada, including the dual crude oil market and the emergence of a price differential between crude oil benchmarks, is important in explaining variations in provincial gasoline price indexes," Statistics Canada said.