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Canadian Gas Price Hikes Outpace U.S.

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While prices at the pumps across America remain relatively stable heading into Christmas and the New Year at an average of $2.44 a gallon — 18 cents more expensive than the same time last year — Canadian’s appear poised for an unpleasant yuletide lump of coal. At a national average of $1.16 cents a liter or $4.39 a gallon, Canadian gas prices are a staggering 41 cents a gallon higher than this time last year.

And they are about to become a lot more expensive.

The disparity in prices between the two national averages is often chalked up to the stark differences in taxation on fuel. Though U.S. aggregate average state and federal taxes on gasoline amounts to approximately 48 cents a gallon (12.7 cents a liter), the Canadian average tax taken by the federal, provincial and in some instances, municipal governments, amounts to 40 cents a liter ($1.51 a gallon) or three times what Americans pay in gas taxes.

The widening difference in fuel taxes between the two countries is set to increase again this year with some provinces, notably Alberta, Manitoba and 3 Atlantic provinces adding 3 cents a liter (11 cents/gallon) to comply with carbon emission targets. But ever-increasing taxes in Canada doesn’t quite explain the contrast.

Throughout 2017, refinery margins in Canada increased by an average of about 3 cents a liter. Traditionally, Canadians pay for all fuel in U.S. dollars based on the relevant U.S. benchmark spot markets on the New York Mercantile Exchange (NYMEX), Chicago Mercantile Exchange and the Pacific Northwest (PNW) market out of Portland, Oregon. However, throughout much of the year, Canadian rack prices compared to their relevant U.S. markets were substantially higher than seen in previous years. As an example, while Vancouver, BC pays about 13 cents a liter (49 cents a gallon) above PNW benchmark prices, 2017 saw that increase to about 17 cents a liter or 64 cents a gallon. At the time of writing, the difference is 17.4 cents a liter (66 cents/gallon). Toronto didn’t fare much better with averages of about 9 cents a liter (34 cents/gallon) above NYMEX prices, an average increase of about 3.5 cents a liter or 13 cents a gallon more, compared to 2016.

Taxes and increasing refinery profits aside, Canadian retailers seem to have managed a slight increase of about 1 to 2 cents a liter in their operation margins. Although this is not often easy to tabulate, given the intraday price changes as many gas bars drop and raise their retail margins daily in order to match competitors, defend market share or increase sales volumes to earn greater discounts from their suppliers, there has indeed been a 2 cent a liter (7.5 c/gallon) average increase in retail profits in the past year. This is especially true in the country’s most populous cities.

So, while the U.S. may see prices rise in the Midwest, given production issues at some refineries in Illinois, Canadians, on the whole, will see those increases double those American drivers may face throughout the Christmas holiday and into the New Year.

For all those traveling to be with family at this special time of year, may we take this moment to bid you a happy and safe holiday for this Christmas season.

Senior Petroleum Analyst, Canada

Dan is a skilled and noted bilingual (French and English) consumer advocate specializing in energy and current affairs. Known as Canada's “Gas Guru,” he founded tomorrowsgaspricetoday.com to better help motorists anticipate the price of gasoline in advance across Canada. He has over three decades of experience in the petroleum industry, as a parliamentarian and an analyst.

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