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UNDERSTANDING FUEL PRICES? Fuel prices can be a very emotional topic. Business owners and consumers often feel trapped when prices increase suddenly and they are left with no option but to pay the higher prices. There is no doubt that budgeting for fuel costs has proven to be very difficult in recent years and it is small comfort when we are reminded that our prices are much lower than most countries. What most people really want to know is “Where are these prices coming from?” We may not be able to stop the fluctuations but hopefully we can shed a little extra light on the mechanics of fuel pricing. Below is our attempt to help eliminate some of the confusion. The fuel that you buy in Canada (specifically BC) includes the following cost components: CRUDE OIL REFINING COSTS PRIMARY FREIGHT (usually pipeline) MARKETING & OVERHEAD SECONDARY FREIGHT (usually trucking) DEALER MARGIN FEDERAL EXCISE TAX PROVINCIAL FUEL TAX (varies by province) URBAN TRANSIT TAX (lower mainland in BC) GST Fuel pricing would be pretty easy to explain if the prices strictly followed changes in the cost of crude oil. However, unfortunately, there are other factors that increase the complexity. For example… Balancing production to meet demand is critical because gasoline has a very limited shelf-life and it cannot be effectively stockpiled for future demand. Refiners have to continually work to balance both gasoline and diesel production to fit the market conditions. Since both products must be produced out of each barrel of crude, the ratio of gas to diesel produced is very important. Although the ratio can be adjusted slightly during refining, any significant adjustment is costly. As a result, you will almost always see seasonal swings with tight supply for gasoline in the summer and tight supply for diesel in the winter. Of course, tight supply generally translates into price increases. If a major refinery experiences unscheduled downtime, demand on other refineries will increase. Inevitably this will cause prices to go up. Most refiners attempt to operate at a production level very near capacity. This keeps the cost per litre at the lowest level; however, it doesn't allow for much flexibility to raise production when there is a need in the marketplace. Production disruptions or significant changes in demand can cause a real scramble in the industry. Short supply means prices climb on the open market as companies try to meet all of their customer commitments. Once we get past the large-scale supply/demand factors, delivery efficiencies play a very important role in the final price. In the past several years, there have been a lot of bulk plant and service station closures across the industry in Western Canada . Fewer sites mean lower overhead and potentially a lower cost per litre. As in most industries, suppliers have to determine what combination of service, facility convenience and price that they will offer. And, of course, consumers will reward them if they make the right choices. FUEL TAXES IN BRITISH COLUMBIA Below are some examples of fuel prices, including a breakout of the applicable taxes. The examples do not include the Urban Transit Tax, which is only applicable within the designated boundaries in the Greater Vancouver area and Victoria.
• Marked (dyed) fuel is only acceptable for approved off-road applications. For more information on fuel taxes in BC, you can visit... |