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Why Are Gas Prices So High in Canada?

To put it mildly, Canadian gas prices are high. As of August 2022, a litre of gas cost $1.26. While gas costs might vary from city to city and province to province, there has been an overall increase over the past five years. Canada ranks third globally in average petrol prices paid by drivers, according to GasBuddy, despite having much lower fuel taxes than other nations. This rise is due to a number of factors, such as changes to Canadian gasoline pricing, supply-related environmental concerns, and deteriorating relations between oil-producing countries, which are driving up global oil prices. We’ll talk about these factors below.

The Effects of the Pandemic

As reported by the National Post, oil corporations halted drilling for new fuel supplies during the two years of the epidemic, and some refineries were slowed or shut down. Additionally, the demand for oil plummeted dramatically around the world.

These same oil corporations are having a hard time scaling up processing and extraction to keep up with the demand as countries prepare for life after the pandemic and economic activity begins to resume. People are suddenly returning to driving to work. Once more, they are travelling by cruise ship and aircraft. But since it takes time to develop new oil wells and restart refineries, the supply is suffering as demand rises. Gas costs are on the rise as a result.

Additionally, the recent pandemic undoubtedly had a huge impact on the supply chain. This implies that everything, including oil, costs more to ship. The end result has been an increase in pricing generally, which has also led to an increase in gas costs.

Taxes

Taxes heavily affect the high gas prices in Canada. In most provinces, fuel taxes have been increasing over the past decade or so.

In Canada, there are three major taxes on gasoline:

  • The federal excise tax of 10 cents per liter (about 25 cents per gallon). It is applied to all fuels used in transportation, including diesel and natural gas. The federal excise tax is calculated based on the volume of fuel actually consumed by the user, so it’s not affected by fluctuations in the price of oil or other factors that affect wholesale fuel prices.
  • The provincial retail sales tax (RST), which is also called a provincial value-added tax (VAT). This tax is applied to both gasoline and diesel and varies from province to province.

Russian Invasion of Ukraine

There’s no doubt that we are facing an increase in gas prices, and it’s not just because of the bad weather.

The average price of regular in Canada is about $1.20 per litre, more than double what you’d pay in the States. And that’s not even taking into account the fact that we have to buy our gas in litres, while they use gallons over there.

There are a lot of factors driving those higher prices: taxes, distribution costs, and even currency exchange rates. But one thing we haven’t talked about yet  when it comes to why gas is so expensive in Canada is Russia’s invasion of Ukraine.

Russia is one of the world’s largest oil producers and exporters, so when it invaded Ukraine, it sent shockwaves through the international community and caused oil prices to jump 20%. Those higher prices make it harder for oil companies to make profits on their production, which means they need to raise their prices for consumers like you and me. The same goes for natural gas producers like Enbridge Gas Distribution (EGD), which has seen its stock price double since the beginning of March due to these geopolitical events.

Refining Costs

Refining costs are also a big factor in determining what drivers pay at the pump. Refining is when crude oil gets processed into gasoline and other products like diesel and jet fuel. It’s done by companies called refineries that produce these fuels in large quantities and ship them around North America through pipelines or by tanker truck to gas stations like yours where they are sold to customers like you. Refining costs include transportation, labour and operating expenses such as electricity which can vary depending on where the refinery is located or how much demand there is for its products at any given time

What’s Next? What Should You do?

Now that you know more about the causes of rising gas prices, you might want to:

  • Consider strategies to save on gas. 
  • In order to accommodate for increasing petrol prices, alter your expenditure in other areas as well as your budget 
  • Evaluate your investment objectives, risk tolerance, and recommendations with your advisor in light of the current market turbulence.

Given how many factors affect the increase of gas prices in Canada, it’s no surprise that they can fluctuate so much. While the short-term trends may be difficult to predict, there are things we can do to keep our fuel costs down and reduce dependence on fossil fuels.

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