Canadian Gas Prices Explained (again)

Originally published at: - Miguel's website

If crude costs are really 42 % of the cost of gas prices, why does a 24 % increase in crude costs cause an 85 % increase in retail gas prices?

Graph of oil prices in the last three months:

Graph of gas prices in the last three months:

Market forces have nothing to do with retail gas prices — if they did, then all the gas stations in town wouldn’t have the exact same price.

Follow the discussion on HTMF.

Last week, when gas prices jumped 8 cents a litre in Prince Rupert, 3 out of 4 gas stations in town raised their prices. Despite no deliveries of new expensive gas, Chevron, Esso, and Petro-Canada stations all raised their prices.

The Mohawk station kept the old price, at least for half a day. Driving around town, absolutely nobody was buying gas at the 3 expensive stations. There was a huge lineup at the Mohawk station. Business was good — people were going into the store and buying lots of stuff, and the other stations and stores were largely deserted.

Guess what? By the end of the day, Mohawk raised its price too (even though Mohawk’s costs hadn’t increased — there hadn’t been any fuel deliveries). Business dropped again.

Is there an understanding between the gas retailers that they all have to sell at the exact same price? There are no market forces at work here, no supply and demand, no small business practices or anything like that. It just doesn’t make sense.