An op-ed, short for “opposite the editorial page”, is a written prose piece, which expresses the opinion of an author usually not affiliated with the publication’s editorial board.
Editor’s Note: Prince Albert-based economist Kaase Gbakon did some hard number crunching on gasoline prices. This is part 1 of 2.
By Kaase Gbakon
INTRODUCTION
Whenever oil prices rise, Canadians feel it at the pump. The reasons for the pinch have been explained repeatedly. The usual suspects are lined up and questioned: oil price, taxes, retail/marketing margins, and exchange rate. One suspect drawing much attention these days is the carbon tax – but we will talk about that later.
In a 2005 paper by Natural Resources Canada | Ressources naturelles Canada , the authors, drawing from The Conference Board of Canada position, hinted that the ease with which consumers can compare publicly posted gasoline prices is a significant factor fueling consumer frustration over frequent changes in pump prices.
While we can talk about general movements in gasoline prices with oil prices and local taxes, how about retail price disparities across the country? And how about the retail price movement of other fuels, like diesel and heating oil? Surely, these fuels must also matter in the broader conversation.
In this article, I invite you to come with me as I look at 400 months of historical retail prices of four different fuels across Canada – regular gasoline, premium gasoline, diesel, and home heating oil. For now, we will examine just two questions:
- What is the dispersion or range of retail prices of the four fuel products over time?
- Where have the maximum and minimum retail prices of each of the four fuels occurred?
Let’s go!
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RETAIL FUEL PRICING
Since 1985, the Government of Canada, in agreement with the Western provinces, has been committed to a market-based energy policy. This means that in the “Great White North,” competitive markets determine fuel prices. Nevertheless, older folks would remember a time between the 1970s to the early 80s, when government price controls were in place to determine consumer prices for gasoline and other fuels.
While the Federal Government of Canada does not regulate retail prices, the provinces can if they choose to. Prince Edward Island, Newfoundland and Labrador, Nova Scotia, New Brunswick and Quebec are provinces that chose to regulate. The historical details and intricacies are documented here if you are interested.
Irrespective of whether the fuel price is market-driven or regulated, figure 1 illustrates how retail prices are formed.
Essentially, the price seen by the customer who drives up to the gas pump is the cumulative of crude oil prices, refinery margins, retail margins, and taxes.
I can’t help myself but to re-express the above in a formula:
Over time, the customer would have been exposed to a different price depending on where and when [s]he bought, and what fuel was bought. Figure 2 illustrates.
This is a plot of the average retail price of the respective fuels across Canada from Jan 1990 to Dec. 2023. In June 2022, regular gasoline peaked at C$2.10/Ltr, while premium gasoline peaked at C$2.30/Ltr. In Nov. 2022, diesel peaked at C$2.34/Ltr, and household heating fuel at C$2.24/Ltr.
While I have not cluttered the chart with an extra line showing the evolution of oil price, I can assure you that the US benchmark WTI and Canadian WCS exhibited the same profile. If you don’t believe me, you can see for yourself here on this link or in this informative article by Oil Sands Magazine .
As of Dec. 2023, regular gasoline was down to C$1.51/Ltr and premium gasoline was C$1.74/Ltr.
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FILL HER UP
On any given day, the cost to fill up a tank will differ from one region to the next. These differences are driven by:
1. The cost of transportation,
2. level of taxes (federal, provincial, municipal)
3. level of competition, and
4. quantity of fuel a station can dispense.
Without going deeply into the technicalities driving the differences, I will show what these differences have been across Canada for four different fuel types.
But first, let me describe how I am going to do so.
Methodology
- I obtain the monthly average retail prices for gasoline (regular and premium), diesel and home heating oil, by geography from Statistics Canada | Statistique Canada. The prices are recorded from January 1990 to Dec. 2023 and the eighteen locations covered by Statistics Canada | Statistique Canada are shown in Table 1.
- For each month, I extract the maximum and minimum retail price.
- I then take the difference between the maximum and minimum to arrive at a statistical metric called the “Range.” The Range indicates how dispersed the retail prices are across Canada. I also calculate the average retail price.
- …I am not done yet. Hold on…
- I then locate in which geography the maximum and minimum retail price occurred in every one of those 408 months.
- For the geographies which recorded the maximum and minimum retail prices, I count how many times they have won their titles in the last 408 months. This allows me to show you who has been winning the prize for the highest and lowest retail price since 1990.
- Finally, using a plot inspired by Carlos Barboza I create a visual which indicates which regions in Canada have had the maximum and minimum retail prices through time.
- I repeat Step 2 to Step 7 for each of the four products!
Straight forward.
…and oh, before I forget, the table of geographies represented in the Statistics Canada | Statistique Canada tables.
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Now, to some outcomes…
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RESULTS…
Let’s examine the results of our analysis by fuel type.
Regular Unleaded Gasoline
In Jan 1990, the maximum regular gasoline price was C$0.59/Ltr in Montreal, QC and the minimum was C$0.479/Ltr in Calgary, AB. This implied a range of C$0.111/Ltr. This range increased to C$0.593/Ltr as of Dec. 2023 when the maximum price of C$1.793/Ltr was recorded in Whitehorse, Yukon and the minimum price of C$1.2/Ltr was recorded in Calgary, AB.
See the graphic below, which shows the range overlaid with its 12-month moving average.
The black line representing the 12-month moving average of the range allows us to see a trend. Regular gasoline retail price range has been on the increase – meaning the gap between the highest and lowest gasoline prices has been widening over time.
This is likely due to the different tax rates between jurisdictions tied to gasoline rack prices, which are closely correlated with oil prices.
Next up…we look at those locations where the retail price of regular gasoline has been highest and lowest over time.
Table 2 shows where regular gasoline has been the maximum from Jan 1990 to Dec. 2023. The locations in the North territories have recorded the maximum regular gasoline price in 265 out of the 408 months covered, while the locations in the Atlantic have recorded the highest regular gasoline price in 13 out of 408 months.
As informative as Table 2 is, it does not tell me when these regions recorded the highest prices. For that, I plot a graph…
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The graph I plot shows the maximum retail price of regular gasoline against a colour-coded backdrop of the regions where the maximum occurred (credit to Carlos Barboza ). You can see more of Carlos’ work on his website here.
Figure 4 is an interesting graphic describing how “power has changed hands” in the last 33 years.
For much of the period from 1990 to 2010, the locations in the Northern Territories (Whitehorse, YT and Yellowknife, NWT) recorded the highest retail prices for regular gasoline.
However, in the last decade the Western region took that honour. The highest gasoline retail prices were recorded in locations in the West, interspersed with locations in the Atlantic provinces and Northern territories. However, the splash of yellow representing the West in this graphic is unmissable! But remember that the locations in the West responsible for this splash of yellow are both in British Columbia (see Table 2).
… OK, so how about locations with the least retail prices? Let us look first at Table 3.
Locations in the West feature prominently on this table. In 360 out of the 408 months covered by my dataset, locations in the West have reported the lowest retail prices for regular gasoline.
Put this over time and the following graphic results.
Now, this is a sea of yellow! The West has had locations that have consistently reported the least regular gasoline prices, according to the records obtained from StatCan!
Occasionally, locations within the Atlantic and Central provinces throw up the lowest retail gasoline price nationally.
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So why is the West represented on both graphs, especially from January 2011?
This is because locations in the West represent such a wide diversity of price points that it is possible to find both the highest and the lowest price in the region at the same time. It also doesn’t escape notice that in the source data used for this analysis, more locations are accounted for in the West (7 actually) than any other region (see Table 1 above).
Let’s see what the story is for Premium Unleaded Gasoline.
Premium Unleaded Gasoline
In Jan 1990, the maximum regular gasoline price of C$0.634/Ltr was found in Montreal, QC and the minimum of C$0.525/Ltr was in Toronto, ON. This implied a range of C$0.109/Ltr. This range increased to C$0.411/Ltr as of Dec. 2023 when the maximum price of C$1.962/Ltr was recorded in Vancouver, BC and minimum price of C$1.551/Ltr was recorded in Saskatoon, SK.
See graphic below of the price range overlaid with its 12-month moving average.
Like the trend noted for regular gasoline, the gap between the lowest and highest premium gasoline price has widened over time. There are also signs of seasonality in the time series.
Table 3 shows the locations where premium gasoline retail prices have been highest.
Victoria and Vancouver in BC are the locations in the West that report the highest retail prices for premium gasoline. The Northern territories record the highest number of months with maximum retail prices of premium gasoline.
Now, I look at the trend of the maximum retail price for premium gasoline and where these have occurred over time. The plot below explains.
Between Jan 1990 and Dec. 1992, locations in the Central Provinces recorded the highest retail prices for premium gasoline; however, from around Jan 1993 to sometime in 2004, the highest premium gasoline prices were found in locations in the Northern territories. Victoria and Vancouver, BC, in the West, began recording the highest prices intermittently from 2004 to 2015. In the last decade, the BC locations in Western Canada have recorded the highest premium gasoline prices in the country.
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Now for locations with the least premium gasoline prices…
Table 5 shows that the locations in the Atlantic provinces report 215 months for which the least premium gasoline prices are recorded. This is the highest.
Locations in the West reported the least premium gasoline prices for 137 out of 408 months.
While for premium gasoline, the locations in Western Canada are still well represented in delivering the least prices in the country, the Atlantic provinces carry this one.
Representing this in time dimension shows that the hotly contested price for region with the least premium gasoline price has alternated between West and Atlantic. However, the Atlantic locations have dominated in the last 36 months of the period.
As for the minimum price for premium gasoline, locations in Atlantic and Western Canada have shared that title from January 1990, with locations in Central Canada showing up occasionally.
…To be Continued tomorrow.
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