Crude oil prices and the effect on gasoline prices
What determines the price of crude oil?
The price of oil is set in the global marketplace. Oil is traded widely all around the world and can move from one market to another easily by ship, pipeline or barge. Therefore, the market is worldwide and the supply/demand balance determines the price for crude oil all around the world. If there is a shortage of oil in one part of the world, prices will rise in that market to attract supplies from other markets until supply and demand are in balance. If there is a surplus in a region and the price drops, buyers will soon be drawn to that market. Prices vary only to reflect the cost of transporting crude oil to that market and the quality differences between the various types of oil. The global nature of the market also explains why events anywhere in the world will affect oil prices in every market.
Need more information? See How World Oil Markets Work
If Canada produces more oil than it uses, why can't it set a "Made in Canada" price?
The immense size of Canada makes it more practical for some regions to import foreign crude oil rather than transport Canadian crude oil over long distances to their refineries. For example, the crude oil refined in eastern Canada comes from the North Atlantic and the Middle East, instead of Alberta. As a result, nearly half of the oil processed at Canadian refiners comes from other countries and is bought at a world market price. The price of gasoline follows the price of crude oil, so any increases or decreases in crude prices will affect the price you pay for gasoline.
Need more information? See How World Oil Markets Work
Why does the price of crude oil affect the price of fuels such as gasoline?
Crude oil is the raw material used to make fuels such as gasoline. An increase or decrease in the cost of oil changes how much refiners pay to buy and refine the oil into gasoline. Refiners sell their products to marketers and distributors who in turn pass on the higher or lower prices to consumers at the pumps.
How is gasoline made?
Gasoline is made from crude oil. Once the oil is taken out of the ground, it is taken to a refinery for processing. Refining is a very complex process that uses heat, pressure and chemical reactions to turn crude oil into a variety of products such as gasoline, heating oil, jet fuel and diesel fuel. A major part of refining involves blending, purifying and fine-tuning gasoline to meet vehicle manufacturers’ specifications and government standards.