Why are gas prices in Canada out-of-line with oil prices?
Gas prices in Canada have increased despite the price of crude oil dropping to $87
OTTAWA—The Bank of Canada says Canadians aren’t imagining things when they notice gas prices are unusually high despite the price of crude oil.
The central bank confirmed the price of gas in Canada has increased by more than the price of WTI (West Texas Intermediate) oil, the main U.S. benchmark.
And gas prices have largely failed to decline in conjunction with WTI.
The bank, however, argues that doesn’t mean Canadians are getting ripped off.
It says gas prices are generally composed of the price of crude, taxes and profit margins for refineries and retailers.
Taxes on pump prices have increased in Ontario and British Columbia with the introduction of the HST.
But the main reason, the bank says, is that Canadian refineries use WTI crude for only about half their requirements, the rest coming from Brent North Sea oil.
In the past, that hasn’t mattered much because WTI and Brent prices were generally close. But since the beginning of 2011, an oversupply of WTI crude has resulted in a price drop of that blend.
Currently, the price of WTI oil is about $87 a barrel, while the Brent price runs at about $109.
“In this context, the crude costs paid by Canadian refineries have, on average, been higher than those implied by WTI,” the bank says. “As a result, gasoline prices in Canada have remained relatively elevated at the national level.”
Different regions have been affected differently depending on the mix of crude oil blends used by refineries, it adds.
The bank didn’t venture into the subject of whether refineries and retailers are taking a bigger slice in profits.
The bank says it expects price differences between WTI and Brent to last a few more years.