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Market Snapshot: Canadian Gasoline Prices Track Brent Closer than WTI
Release date: 2015-06-30
Changes in Canadian retail gasoline prices may be caused by numerous factors, including local retail supply and demand conditions, taxes, and crude oil prices. Despite short-term volatility, gasoline prices are highly correlated with crude oil price trends in the long term. When assessing the gasoline-crude oil price relationship, the choice of crude oil price is important. Gasoline is widely used and traded across the globe, and generally gasoline prices follow international crude prices rather than local crude prices.
Recent analysis by the U.S. Energy Information Administration found that American gasoline prices tracked Brent and WTI prices fairly closely prior to 2011. Since 2011, when WTI started trading at a discount to international crude prices (e.g. Brent), Brent has been a more powerful indicator of U.S. gasoline prices than WTI.
Canadian retail gasoline prices appear to follow a similar trend. The figure below compares the difference between Canadian gasoline prices and Brent crude oil to the difference between Canadian gasoline prices and WTI crude oil. Like in the U.S., prior to 2011 the difference between gasoline and crude price was similar for both crudes since the two prices moved closely together. Following 2011, when the Brent-WTI differential widened, the gasoline-Brent spread remained similar to historical levels, while the gasoline-WTI spread increased dramatically.
Figure Sources and Data
Sources: EIA, Natural Resources Canada, NEB calculations
Description: This chart captures the annual average Canadian retail gasoline price to crude oil price spread. The spread is calculated by converting annual dollar per barrel crude benchmark prices into cents per litre which is then subtracted from average gasoline prices. As shown in the chart, the spread for both WTI and Brent was fairly constant between 2000 and 2010, ranging from 12 to 21 cents per litre. However, post 2010, while the spread for Brent remains constant the spread for WTI has widened to as high as 29 cents per litre.
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