When oil supply and demand go out of balance, the Organization of the Petroleum Exporting Countries (OPEC) often agrees to produce more or less oil, in order to balance worldwide supply and demand, and keep the oil price steady. OPEC was formed in 1960 by Iran, Iraq, Kuwait, Saudi Arabia and Venezuela. Today, 14 countries are members of OPEC.
| Gasoline | | Print | |
|
Most people think of gasoline when they think of the oil and gas industry. More often than not, a conversation about gasoline is about the price, so that’s what we’ve covered here.
Crude Oil Costs. Gasoline is known as “gas” but it’s actually made from oil. That means that the price of a barrel of oil affects the price of a litre of gasoline. But what affects the price of a barrel of oil? Well, crude oil is a commodity that is traded worldwide. The price that oil trades at is affected by many factors. The most important oil pricing factor is demand versus supply. If there is strong worldwide demand for oil when supply is limited, the price goes up. For example, when the global economy was booming around 2006-2007, countries around the world needed oil to fuel their growth. But when demand for oil drops off and there’s too much supply, the oil price goes down. Even in Canada where we produce our own crude oil, gasoline pricing is based on global oil pricing. Oil companies sell their crude oil at the market price, then have to pay their costs out of that revenue. These costs include everything from operating costs to employee salaries to taxes. Many of the costs are fixed, so oil company profits can go up and down depending on the global price of crude oil. Another important oil pricing factor is quality. There are different grades of oil. “Light oil” is easier and cheaper to refine so it sells at a higher price than “heavy oil”. Alberta produces a lot of heavy oil, which is thicker and more dense than the light oil produced in countries like Saudi Arabia. Heavy oil is more challenging and costly to produce, refine and transport, so it is sold at a lower price per barrel. In North America, we typically measure oil pricing by the benchmark West Texas Intermediate (WTI) price. WTI is the price for a barrel of “light, sweet” crude oil. This is low-sulphur oil, easily refined into gasoline. WTI price is always given in US dollars. For yesterday’s WTI price of crude oil, go to PSAC’s Statistics and scroll down to WTI Cushing Spot. US/Canadian Dollar Exchange Rate. Because crude oil is traded in US dollars, we need to factor in the US/Canadian dollar exchange rate. Refining Costs. Crude oil that comes out of the ground has to be refined before it can be used as a fuel like gasoline. Heavy oil needs more refining than light oil. Transportation Costs. Crude oil might come from northern Alberta, central Saskatchewan or the east coast. From there, it has to be transported to refineries. Canada has a number of refineries, but sometimes oil has to travel hundreds of kilometres by pipeline before it reaches the refinery. Once oil is refined into gasoline, it has to be brought to the retail market to be sold. Marketing Costs. Gas stations have to make at least a small percentage on the gasoline they sell. Taxes. Federal, provincial/territorial and sometimes municipal governments receive taxes from every litre of gasoline sold. The taxes typically account for about a third of the cost of each litre of gasoline. To learn more, go to Gasoline Pricing Questions and Answers on the Canadian Petroleum Products Institute website.
Do you think we pay too much for gasoline in Canada? Compare average gasoline prices in countries around the world. Wait a second! If everyone around the world pays the same price for a barrel of oil, why is gasoline so cheap in countries like Venezuela and Iran? Their governments subsidize and control the costs of oil within the country, while other countries, like Canada, allow the global market to set oil prices based on worldwide supply and demand. |