From Oil Field to Gas Tank: How the Global Supply Chain Determines Fuel Costs
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- Even in Canada, the world's fourth-largest oil producer, the price consumers pay for fuel is determined by a global system that stretches from Middle Eastern shipping lanes to Wall Street trading floors. Gasoline prices are not a single figure set overnight, but rather the sum of a series of fluctuating numbers that begin with the price of crude oil.
- As a globally priced commodity, oil is still subject to supply and demand dynamics. Agencies such as the International Energy Agency publish demand forecasts based on economic growth, industrial activity, and seasonal consumption patterns, which influence market expectations. Oil analyst Roger McKnight points out that without crude oil there is no gasoline—everything starts with crude oil, which is globally priced.
- Currently, the global balance of oil supply and demand is being disrupted by geopolitical tensions: partial disruptions in the Strait of Hormuz have removed a significant portion of global supply from the market, driving up oil prices. When traders on the New York Mercantile Exchange receive news of geopolitical events or supply interruptions, they immediately adjust their expectations, often leading to sharp price fluctuations within a single day. McKnight describes a chain reaction in the gasoline market over about three days: crude oil futures prices move first, wholesale gasoline prices adjust next, and finally, retail gas stations follow suit.
- Crude oil accounts for about 40% to 55% of fueling costs, taxes comprise 25% to 35%, refining makes up 10% to 25%, and the rest is distribution and retail profits. Canada’s annual inflation rate rose to 2.8% in April, the highest in nearly two years, mainly driven by gasoline prices pushed higher by the Iran war. Concordia University’s Moshe Lander says oil and natural gas, like any other commodity, are determined by supply and demand. Since Canada exports most of its oil, producers will not sell to domestic refineries at below international market prices. At the same time, Canada also imports gasoline from the United States, so domestic prices cannot escape global pricing trends.
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