Frequently Asked Questions

Petroleum Pricing

The following FAQs are intended as a general guide to petroleum
pricing in Prince Edward Island. 

 
 


1
. How can petroleum product pricing rise while the market price of crude is declining?


While crude is often the most frequently used barometer of petroleum product pricing and certainly the one most quoted by the news media, the Commission utilizes actual refined product wholesale market pricing in the determination of its pricing adjustments. Adding to the confusion, crude pricing often tracks quite differently from refined product pricing due to seasonal or other market factor determinants. Accordingly there are times, such as in January 2009, when crude prices were falling while refined product prices were rising.

Referencing the price of gasoline to the last time crude was trading at a certain dollar value a barrel, for example, is to a large degree meaningless as so many other factors including tax rate differentials, changes in the Canadian and U.S. exchange rates, seasonal market demand variables and other relevant market determinants would have to be taken into consideration in order to make the comparison accurate. To illustrate, crude traded at an average of $40.28 in May of 2004. During that month, the average price of gasoline on PEI amounted to 87.7 cpl. On January 9, 2009 crude closed at $40.83 on a day when the maximum posted price for regular unleaded gasoline on PEI was to 69.1 cpl. As you can see, the relationship between crude and refined product pricing does not always correspond intuitively.


2. What is the relationship between world crude prices and what I pay at the pumps for gasoline?


There is an indirect relationship. Pump prices as established by the Commission are based on changes in refined gasoline product prices as traded on the New York Mercantile Exchange (NYMEX). While over time, the trending of crude prices should correlate with refined product pricing, it is not uncommon, in the short term, for crude prices to be heading in one direction while refined product prices head in the other. Both are internationally traded commodities and as such can be subject to different market influences. Crude prices for instance may be falling due to global economic conditions while refined gasoline prices may be rising due to local and regional supply circumstances.


3.
How do PEI prices compare to other Canadian markets?

The attached table offers a comparison of consumer prices across Canada.  It should be noted that prices in regulated markets are much more stable than in unregulated markets where prices can vary daily and, in some cases, several times throughout the day.  It should also be noted that the volume of product sold in a particular market influences consumer prices.  For example, the Atlantic Provinces account for 7.5% of the gasoline consumed in Canada, whereas Ontario and Quebec represent 40% of total consumption.

See M. J. Ervin & Associates Inc. - Weekly Pump Price Survey [click here]

 


4.
Which petroleum products are regulated in P.E.I.?

The Commission is responsible for regulating the prices of gasoline, diesel, stove oil, furnace oil and most propane products sold within the province of Prince Edward Island.  A minimum and maximum price range is set for retail gasoline and diesel products whereas maximum prices are set for furnace oil, stove oil and propane.

View currently authorized petroleum prices [click here]


5. Where does the Commission get its authority to regulate prices?


Authority for price regulation is contained in the Petroleum Products Act. Under the legislation, the Commission's role is to "ensure at all times a just and reasonable price for heating fuel and motor fuel to consumers and licensees within the province."

See section 2 of the Petroleum Products Act [click here]


6. How is the decision to change prices made, what steps are followed and what factors are considered?

The Commission's pricing decision process involves the daily monitoring of regional, national and international information relative to ongoing developments in petroleum product markets.  Based on an analysis of this information, the Commission sets petroleum prices on a weekly basis, effective every Friday.

More specifically, the foundation for price changes is the average change in the market price for refined products traded on the New York Mercantile Exchange (NYMEX) over a defined period of time (usually 2 weeks). For example, a 5 cent increase (or decrease) in the average NYMEX price over a defined time period will usually result in a 5 cent increase (or decrease) at the pumps.

When arriving at the price adjustment, the Commission also takes into account the volumetric impact (the influence of price times volume over time) of any proposed change and also international, national and regional market conditions.

The averaging process often results in retail prices that are either above or below prices in neighbouring provinces. This is the normal effect of price averaging and often results in PEI prices being several cents a litre either above or below those in effect in other jurisdictions at any given time. When prices are rapidly increasing in other provinces, PEI prices tend to be lower. The opposite is true when prices are rapidly decreasing.


7. What factors influence the world price of crude oil?

Refined products such as gasoline, furnace oil, stove oil and diesel are made from the processing of crude oil. Crude oil is sourced from all over the world, including the Middle East, Africa, the North Sea, Russia, South America as well as the United States and Canada.

Crude oil and its refined product derivatives are bought and sold on various commodities exchanges around the world, such as NYMEX, with the price of these products changing every day and, indeed, several times a day.

A variety of factors can influence world prices of crude oil and its refined derivatives. These factors include:

  • the supply and demand for oil products;

  • interruption of supply as a result of geopolitical occurrences such as civil unrest or war;

  • natural disasters and weather patterns;

  • speculative actions on the part of money managers; and

  • seasonal demands.


8. What is the difference between crude oil and refined oil products?



Crude oil is the base product from which most refined oil products such as gasoline, diesel and home heating fuel are produced.  Crude processed in Atlantic Canada is typically sourced from overseas locations such as Venezuela and Nigeria, shipped to Canada by ocean going crude tankers and refined into finished products in refineries located in Saint John, New Brunswick, and Come By Chance, Newfoundland. Refined products produced at these refineries are then shipped throughout Atlantic Canada, the U.S. and Europe.

9. What factors influence refined product prices?

Refined product prices are impacted primarily by supply and demand issues. Traditionally, gasoline and diesel product prices are higher in the spring and summer months when demand related to domestic traffic patterns peak. Alternatively, home heating prices are higher in the fall and winter months when demand is highest. Occasionally, production interruptions resulting from storms or unscheduled refinery or pipeline shut downs can impact supply therefore impacting market prices. At times, speculative activity and currency issues can also influence refined market prices in a dramatic fashion.


10.  How does the value of the Canadian dollar versus the U.S. dollar impact local petroleum prices?

As crude is priced in terms of the U.S. dollar, a devaluation of the Canadian dollar can make crude more expensive for Canadian refineries to purchase and, in turn, can make refined products such as gasoline, furnace oil and diesel more expensive to produce.  A rising Canadian currency alternatively serves to reduce the cost of production which ultimately results in lower petroleum products prices.

The relationship is a critical component in the determination of local prices as has been demonstrated in the fall of 2015 when during times of declining global crude prices, a devalued Canadian dollar limited our ability to benefit from lower U.S. dollar priced crude prices.


11. Why do events in some other part of the world impact the price I pay for petroleum products in P.E.I.?


When events such as natural disasters, military activity, labour strife or geopolitical issues interfere with the production of crude and refined products, overall world supply is affected.

The implications of supply-side problems usually result in a price impact throughout the world, including the cost of products being shipped into PEI.  Although Canada, itself, produces significant amounts of crude, much of Canada's oil production is shipped directly into the United States.

Although the Commission regulates the price of heating fuel and motor fuel sold in PEI, it has no authority over world oil prices.  Because it is a globally-traded commodity, oil producers can and will sell to the highest bidder. In order to ensure continued access to these products, regulated prices must be fair - or just and reasonable - to both the consumer and product wholesalers and marketers.


12. What do international market prices and refinery rack prices have to do with what we pay here?


The reference price for refinery rack prices in the region is the New York Mercantile Exchange (NYMEX) price. Product is bought in all of Atlantic Canada on the basis of refinery rack prices. Rack prices are normally priced slightly above the NYMEX price. The Commission uses the Charlottetown rack price when setting petroleum prices. (Previous to February 2011 the Commission used the Halifax rack price).   

Both the major oil companies and industry marketers are directly affected by the rack price. Marketers buy on the basis of the rack price and the retail arms of the major oil companies measure their profitability in a particular area on the basis of the rack price. When the price approved by the Commission is below the rack price, the industry sells into the Prince Edward Island market at a loss and marketers sell below cost.


13. Why doesn't the Commission simply ignore world market and regional rack prices and set the retail price at some amount that is more affordable?


By legislative mandate the Commission is required to ensure at all times a just and reasonable price for heating fuel and motor fuel to consumers and licensees within the province.  This means that the Commission is charged with the responsibility of ensuring that Island consumers pay no more than they should for petroleum products while ensuring that the wholesale suppliers providing petroleum products to the Island market are enabled to make a reasonable rate of return.

The prices at which PEI petroleum distributors purchase products are outside the jurisdiction of the Commission. In fulfilling its legislative mandate, the Commission is obliged to set prices on PEI at a level which permits these companies to recover costs. The viability of the wholesale industry is necessary in order to ensure the supply of petroleum products to PEI.


14. What can I do to reduce my monthly gasoline and home heating bills?


Reducing your consumption of both gasoline and home heating fuel is your best defense against high petroleum bills.

There are a number of excellent websites with information on managing home heating costs:

Province of Prince Edward Island, Office of Energy Efficiency
https://www.princeedwardisland.ca/en/topic/energy-efficiency)

Natural Resources Canada, Office of Energy Efficiency
(http://oee.nrcan.gc.ca/)

Canada Mortgage and Housing Corporation
(
http://www.cmhc-schl.gc.ca )


15. Why doesn't the Commission give notice of impending price changes?


Commission authorized price changes are currently scheduled weekly. Price changes take effect at 12:01 am each Friday. The news release is an effort to inform the public of what the currently authorized petroleum product prices are for Prince Edward Island as well as to provide some background to the Commission's pricing decision. It does not attempt to reflect all of the factors considered by the Commission. 

Given the volatility of energy markets and a desire to have the most up to date data available to the Commission, the meetings at which pricing decisions are made are typically scheduled late in the morning of the day before a pricing decision comes into effect. Once a decision is made it must be communicated to the wholesale industry to allow implementation of the new pricing information into various accounting, invoicing and taxation record keeping systems. The Commission informs the wholesale fuel suppliers later in the afternoon with the wholesalers being responsible for informing their respective retail networks. 

The Commission's legislated mandate requires it to be fair both to industry and consumers. At one time the news release was issued a number of hours prior to the price changes taking effect; however, this practice had a detrimental effect on the independent retail operators in the province. More than 80% of the retailers on the Island are classed as independents, meaning they are local businesses operating only on the retail margin fixed by the Commission, a margin which does not change when the prices of fuel changes. Advance notice of price changes would permit the consumer to take unfair advantage of such local retailers by affording them the opportunity to plan their purchases in light of pending price changes.


16. What about the home heating market?


The logistics of home heating delivery normally require that delivery truck schedules be planned several days in advance. This ensures efficient utilization of both personnel and equipment and lowers the overall costs of delivery. The minimal notice period used by the Commission eliminates the potential for furnace oil sellers to alter delivery schedules to maximize revenues and also serves to protect these same sellers from being forced into making inefficient and costly deliveries due to an influx of last minute orders. In today's volatile marketplace, a single day can have a significant impact on world oil prices. When making pricing decisions, the Commission reviews and assesses pricing information that is as current as possible. Information is analyzed on a daily basis and includes information obtained on the very day the decision is made. Accordingly, the ability to give notice is also limited by the time sensitivity of the decision making process.  

 

 

Click Here for Petroleum Pricing - Presentation to the Standing Committee on Infrastructure and Energy - October, 2015


Click Here for Petroleum Pricing - Address to the Charlottetown Rotary Club by Commission Chair Maurice (Moe) Rodgerson, April, 2007


Click Here for Furnace Oil Prices - Presentation to the Legislative Assembly of Prince Edward Island Standing Committee on Social Development - January 2008