Explaining Canadian Gas Prices

  

Since the start of the U.S.- Iran war and the blocking of the Strait of Hormuz, gasoline and fuel prices around the world have soared.  As of yesterday, the daily national average gasoline price in Canada according to CAA was 184.8 cents per litre though of course it varies across the country.  For example, in Thunder Bay this weekend, it hit 203 cents per litre.  Reasons for variation in Canadian pump prices at least according to the CAA include seasonal changes, weather conditions, increased demand, geopolitical conflict, status of oil and gas reserves, refining capacity, and the value of the US dollar given crude prices are in USD.

Of course, despite having substantial supplies of domestic oil, in the end, Canada’s gasoline prices at the pumps are tied to the international price of oil and so what better comparison is there than looking at Canadian gasoline pump prices relative to the international price of a barrel of oil as measured the price of West Texas Intermediate Crude (WTI). For the period January 1990 to April 2026, Figure 1 plots the monthly 18 city average of Canadian self-serve unleaded regular gasoline prices in cents per litre calculated from Statistics Canada (Table: 18-10-0001-01 (formerly CANSIM 326-0009)) alongside the monthly price in USD of Cushing, OK WTI Spot Price FOB taken from the U.S. Energy Information Administration.

 

 

The two series certainly seem to move together.  However, simply eyeballing the movement does not really tell us how sensitive the Canadian price at the pump is to the international price of crude.  For that, linear regression is a better tool.  I took the log of the two series and then ran a very simple linear regression of Canadian gasoline prices on the WTI price.  For the period January 1990 to April 2026, there was an r-squared of 0.86 and a coefficient on the price of WTI of 0.54.  What this can be interpreted as given it was a log-log regression is that since 1990, a 1 percent increase in the price of a barrel of WTI in USD results in a 0.54 percent increase in the average 18 city price of Canadian regular unleaded gasoline at the pumps. 

Has this been a stable relationship over time?  Well, the data was broken up into two approximately equal time periods – January 1990 to December 2007 and January 2008 to April 2026 – and two more regressions were run.  The results were interesting as they suggest that the price of gasoline in Canada over time has become less sensitive to the international price of crude.  Moreover, the two periods separately are less sensitive to the price of WTI than when combined if one looks at the coefficients on WTI. For the pre 2008 period, the r-squared was 0.91 and the coefficient on WTI was 0.44 whereas for the post 2008 period the r-squared was 0.35 and the coefficient on WTI was 0.33.   

Essentially, the results seem to suggest that over time the price of Canadian gasoline at the pumps seems to have become less sensitive to fluctuations in the price of WTI with variations in the price of WTI explaining over 90 percent of the variation before 2008 and barely one third since.  What other factors might explain trends in Canadian gasoline prices?  Well, there is the list of variables provided by the CAA, alongside which one could perhaps also add any changes in fuel taxation by the federal and provincial governments over this period as well as the degree of competition in the Canadian retail gasoline market. Naturally, a fuller and more detailed analysis with more control of assorted confounding factors would be quite interesting. 

Thunder Bay Gas Prices: Higher Than You Think

 

The current spike in gasoline prices has brought prices at the pump to the highest they have ever been.  In just over a week, the price per litre in Ontario has jumped nearly 25 cents and is hovering in the $1.80 a litre range in many places.  In Thunder Bay, the price briefly touched the $2 a litre mark at several gas stations but has since settled to about $1.95 a litre.  This spike is an exuberant uptick that is part of a long upward trend in prices which in recent years has been reinforced by new carbon taxes.

 

The accompanying figure plots the monthly price of regular unleaded gasoline at self-service filling stations for Thunder Bay, Toronto, and Ottawa over the period 1990 to 2022.  The data up to January 2022 is from Statistics Canada while the last two months are calculated from a gasoline price website.  All three series track together quite closely.  Prices were flat in the just below 60 cent a litre range for most of the 1990s and then underwent a significant ascent to Spring of 2008 when they came down.  Since then and until the start of the pandemic prices have gone up and down together in all three cities bouncing between 80 cents a litre and just over $1.40 but were most often at $1 or more a litre.  The pandemic saw another drop in gas prices back to the 80-cent level and then recovered back to the $1.40 range.  The current spike is quite evident for all three cities at the far right of the chart.

 

 

 

While the graph shows Thunder Bay’s gasoline prices nicely tracking the other two cities, the scale of the diagram masks the fact that the differential between Thunder Bay gasoline prices and that of the other two cities has grown over time.  During the 1990s, the average price per litre in Thunder Bay was about 4 cents higher than Toronto and 3 cents higher than Ottawa.  During the 2000s and the 2010s, the price in Thunder Bay average 5-6 cents more than Toronto and about 7 cents a litre more than Ottawa.  For the pandemic period of 2020 to 2022, Thunder Bay’s price per litre has averaged 11 cents more than Toronto and 12 cents more than Ottawa.

 

Notwithstanding the demand and supply shocks of the international energy market, the price of gasoline in Thunder Bay has gradually grown faster than that of the other two major Ontario cities in the Statistics Canada gasoline price data set.  Moreover, that differential has spiked since the start of the pandemic.  Why?  While no doubt local gasoline purveyors will argue that it has to do with rising costs and supply chain issues, the reality is that casual observation over the years reveals that over the last decade the number of gasoline retailers in Thunder Bay has shrunk considerably.  While that has been a process underway in many cities, it is particularly noticeable in Thunder Bay now as the relative lack of competition has allowed prices to be higher than they otherwise need to be.