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The changing story about where your gas dollar goes

Gasoline prices change for many reasons. Sometimes a change in the price of crude oil moves gasoline prices higher or lower. Changes in the supply or demand for gasoline influences prices, as well. Sometimes price wars at the retail level lower prices. Governments may change taxation levels.

This chart demonstrates the changing composition of gasoline prices in the recent past:

  • In the aftermath of Hurricane Katrina, in early September 2005.
  • When crude oil prices briefly reached $140 a barrel in July 2008.
  • When the price of oil fell below $40 a barrel in February 2009.

Hurricane Katrina

Hurricane Katrina interrupted crude oil production in the Gulf of Mexico, causing a slight increase in the price of crude oil.

The hurricane shut down about 25% of the United States' capacity to refine oil into gasoline. This created a need to import gasoline to meet demand, and, in turn, led to a rise in the wholesale price of gasoline and, therefore, the refining margin.

In some cases, local shortages caused oil companies to allocate supplies among their retail customers. Retailers raised prices because they knew they would sell out before being replenished. Some retailers raised prices by 20-30 cents. The higher prices boosted the marketing margin, which is composed of local distribution and retailing plus some overhead charges to dealers by oil companies.

Crude at $140 a barrel

In 2008, the price of oil rose dramatically, closing at a record peak of $145.29 on July 3, 2008.

This dampened demand somewhat and made it difficult for the refiners and retailers to pass on the additional costs fully. As a result, both refinery and marketing margins fell.

Although taxes normally increase when prices rise because of the GST (and the HST in some provinces), the reduction in the GST from 6% to 5% (effective January 1, 2008) eliminated this impact.

The Recession

Oil prices fell precipitously with the decline of the world economy. The price on the New York Mercantile exchange dropped to a low of $35.94 on February 10, 2009. While crude oil costs had been more than 63% of the retail price in July 2008, they fell to 36% in February 2009.

Learn more by reading about > Price Regulation

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