Why is gas so expensive in Canada? - MoneySense (2024)

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If you’ve been feeling sticker shock at the gas pump, you might wonder why gas prices are going up—and what makes them rise and fall year-round. Let’s look at how much Canadians are paying for gas, and what factors can affect the price of fuel.

How expensive is gas in Canada?

According to CAA’s daily gas price tracker, Canadians paid an average of $1.68 per litre on May 2, 2024. That’s six cents more than the lowest average price in the previous 30 days, and 12.3 cents more than one year ago.

What national averages don’t show, though, are the unpredictable price spikes experienced in some locales. Case in point? On April 18, 2024, Toronto drivers woke up to find gas prices had climbed from $1.65 to $1.79 per litre overnight.

That 14-cent-per-litre increase meant that Ford F-150 owners would spend up to $19 more filling their tanks, Dodge Durango drivers would pay an extra $13 and Toyota Highlander drivers would pay $9 more per fill-up. It would cost an extra $8 to fill a family car like the Hyundai Sonata or Chevrolet Malibu, and $7 for smaller cars like the Honda Civic. Use a fleet of heavy trucks for your business? That Silverado 2500 or Ram 2500 HD will cost you $20 to $35 more to fill.

These are big jumps, but gas prices are still well below what they were at the height of the pandemic. In the summer of 2022, the national average price reached an eye-watering $2.11 per litre, says price-tracking website GasBuddy.com.

According to the Canadian Fuels Association, Vancouver had Canada’s highest average gas prices in 2023, followed by St. John’s, Charlottetown, Montreal and Halifax.

If you’re frustrated by wildly fluctuating gas prices, you’re not alone. Below, I’ll give you easy fuel-saving tips that could trim your gas bills by 15% or more. But first, let’s take a look at what affects gas prices in Canada.

Why do gas prices go up and down?

The price you pay for a litre of gas at the pumps includes many costs and taxes that vary between countries, provinces and even regions—but that’s only part of the story. To understand what affects gas prices, it helps to understand how crude oil is processed, and why it’s in such high demand.

Understanding crude oil

Crude oil is a highly valuable substance, found deep underground. It’s made of ancient dead stuff—animals and plants that lived millions of years ago. The value of crude oil lies in its ingredients, which we use to make things like plastic, synthetic rubber, detergents, heating oil, jet fuel, engine oil, asphalt and, of course, the gasoline powering our cars.

Turning crude oil into gasoline is expensive. It uses a lot of electricity and labour, and it requires massive investments in transportation and distribution. Every step along the journey from crude oil to gasoline, including shipping and pumping it into the tanks beneath your local gas station, adds further costs to the finished product.

Economic conditions

Crude oil, the main ingredient in gasoline, is a market-traded commodity whose price is affected by a plethora of factors including the balance of supply and demand, geopolitics, economic conditions and more.

Political tensions, currency exchange rates, seasonal demand, weather patterns and production-level decisions by the Organization of the Petroleum Exporting Countries (OPEC) all play a role in the price of crude oil.

Translation? Before it’s even turned into gasoline, the price of crude oil can fluctuate wildly. There’s also a lot of uncertainty in the world these days—and markets, like the ones that set the price of crude oil, don’t like uncertainty.

Supply disruptions

Supply disruptions can affect the flow of crude oil to refineries, and the flow of gasoline from refineries to fuel stations. Natural disasters may affect the transportation of fuel from refineries, severe weather can affect off-shore drilling, and labour strikes or infrastructure problems can limit supply as well.

Rising demand for gas

Increases in demand for crude oil and gasoline drive prices up, too. Demand can rise with the onset of cold weather or the start of the summer travel season. In the case of Toronto’s recent 14-cent price hike, for example, the blame partly lies with the switch from wintertime to summertime gasoline blends—the latter contains more of a pricier ingredient. This typically pushes gas prices up by six to 10 cents, according to CTV News.

Demand for fuel has also increased as more and more vehicles hit the road in developing countries. And short-term hoarding of fuel in response to major events and uncertainty can also drive prices higher.

Fuel taxes vary from Halifax to Montreal to Toronto to Vancouver

According to the Canadian Fuels Association, 31% of the cost at the pumps in Canada is taxes, roughly 49 cents per litre.

Natural Resources Canada says that Canadian gasoline is subject to a 10-cent-per-litre excise tax and 5% GST, plus provincial sales tax or HST (which varies by province). There’s also a provincial fuel tax that ranges from 6.2 to 27 cents per litre, depending on the province. B.C. is broken into three tax zones—Vancouver and Victoria drivers pay more than those in other parts of the province.

And don’t forget the 14.31-cent-per-litre federal and provincial carbon tax (19.2 cents in Quebec). Most households receive the quarterly Canada Carbon Rebate to offset this cost, but it still adds a little pain at the pump.

How does Canada compare on gas taxes?

You might have heard that gas is cheaper in the United States than in Canada, but why?

According to the Canadian Fuels Association, Canadian gas taxes are more than double those south of the border. With taxes taken out of the equation, the association says, Canada and the U.S. have historically had very similar gasoline prices. Remember, some Canadian gas taxes are regional or provincial, and outside of taxes, gas prices are similar across the country.

In a January 2024 comparison of eight countries by the Canadian Fuels Association, the U.S. had the lowest prices at the pumps: $1.209 per litre (fuel cost of $1.02 plus 18 cents tax).

Japan came in second, at $1.59 per litre (98.6 cents for gas and 60.5 cents tax). Canada was similar, with gas prices of $1.65 per litre ($1.14 for gas and 50.4 cents for tax).

In this comparison, the price paid at the pumps in the U.S., Canada and Japan is mostly the cost of gas, not tax.

The remaining countries in the comparison turn that on its head, however.

The price of gas alone in Spain, the U.K., Germany, France and Italy averages about 11% lower than in Canada, the U.S. and Japan—though the pump price averages some 67% more, about a dollar more per litre.

The reason? Taxes. In Spain, the U.K., Germany, France and Italy, the price at the pumps is mostly tax, not the price of gas.

How to save on gas right now

So, what can drivers do to save money on gas? These tactics can help.

Use your cruise control

When your car speeds up and slows down, it uses more gas than it does when driving at a continuous speed. You can save on gas by using cruise control as often as possible. Cruise control keeps your vehicle’s speed steady, and you can use it at just about any speed. Highway cruising at 95 km/h? Cruise control. Residential 40 zone? Cruise control. Leisurely Sunday drive on curvy, scenic backroads? You guessed it: cruise control.

Cruise control does a much better job than a human at preventing fuel-wasting fluctuations in cruising speed. For some drivers, using cruise control can reduce fuel consumption by up to 60%.

Look for cheaper gas

If you aren’t already, look for cheap gas online. You can check prices on the web, or download a fuel price app like GasBuddy to track down the cheapest fuel in your area on days when you’ll be filling up. Not all stations change their prices at the same time, and you may be able to find significant savings—or at least confirmation that you’re buying the cheapest gas around.

Look for credit cards that offer fuel discounts, cash back or rewards for filling up, especially if you frequent one or two gas station brands. MoneySense has a ranking of the best gas credit cards in Canada.

Check your tire pressure

Improperly inflated tires cost you money by wearing out more quickly and wasting fuel.

According to the Tire and Rubber Association of Canada (TRAC), motorists can improve their mileage by up to 3% by keeping tires properly inflated. Driving on just one tire underinflated by 8 PSI (pounds per square inch) can increase fuel consumption by 4%. For many motorists, that’s over a hundred dollars in fuel wasted annually.

The latest TRAC survey reveals that 81% of Canadian drivers believe that increasing financial pressure has made proper tire inflation and maintenance more important than ever, with 95% of drivers understanding that proper tire inflation is vital to vehicle safety.

But less than a quarter of drivers check their tire pressure monthly, more than half don’t know that inflation pressure should only be measured when tires are cold, and a third incorrectly reference the tire pressure on the tire sidewall when inflating. A further 12% of drivers don’t know how to check tire pressure, or they rely on visual inspections. Regarding the latter, remember that a tire can lose 20% of pressure or more before it starts to appear deflated.

“Tire maintenance is one of the simplest and fastest car care tasks drivers can perform to keep their vehicles and families safe on the road,” Carol Hochu, president of TRAC, said in a press release. “Canadian motorists are well aware of the crucial role tire maintenance plays in optimizing efficiency and EV range. However, our findings reveal a pressing need for more education about how to do tire care right.”

Lighten your load

Alongside underinflated tires, weight and aerodynamic drag are two enemies of fuel efficiency. Keeping your car as light and aerodynamic as possible can put money back in your pocket—so be sure to remove heavy items you don’t need on board, and remove any roof-mounted accessory or bike racks, cargo carriers and the like when they’re not in use.

Will gas prices go up tomorrow?

In summary, the pricing of gasoline’s main ingredient is volatile at best, and numerous costs and challenges apply to its production and distribution, which can further destabilize pricing. While Canadians pay less gas tax than motorists in other parts of the world, there’s a stark difference in gas prices between Canada and the U.S. due to Canada’s more aggressive taxation. Look for savings where you can, whether through a cash-back credit card, driving with cruise control or pumping up your tires.

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• Why car insurance premiums are rising and what to do about it
• Your complete guide to getting the best car insurance in Canada