Why are gas prices rising? Gasbuddy.com tells us why

Soaring gas prices are a growing concern for consumers across Canada, who are now paying as high as $1.30 a litre. There are warnings that prices could go even higher by the summer. So what is behind this recent surge? Is it soley because of the growing unrest in the Arab world? Or is there another explanation? We search for answers with Jason Towes, CEO of gasbuddy.com, a company based in Regina that owns more than 200 websites, onto which volunteer spotters supply information on prices at gas stations and convenience stores across North America. Gasbuddy.com was named by Time magazine as one of the top 50 websites in 2008. It is also one of the top ten free downloads from the iTunes app store.

1. The latest rise in gas prices is being blamed on the crisis in Libya, even though as a petroleum producing country they are a relatively small player on the world stage. What else is at play here?

The supply chain for crude oil is sensitive to disruptions in supplies, and Libya is playing a big part of what’s going on right now. The uncertainty of political unrest in other OPEC nations is very concerning, and there is some price premium involved here too. Aside from this, the time of year is having an impact on the price of gas. Especially here in Canada, where we’ve been cooped up inside all winter, demand for gasoline goes up in the spring and during summer driving season. Increased demand has further led to higher gas prices.

2. Is there a worldwide shortage of oil – or is this more about speculation?

Peak Oil theory says that we’re currently at maximum global output, and output will not go up in the future. There may be some validity to this theory as resources of easy to get to crude oil are dwindling rapidly. This is why they need to get crude oil in the Gulf of Mexico, and other hard to get to places. Having said that, speculators looking to make a profit do drive up prices too. This has a somewhat limited effect, as at the end of the month, someone needs to take delivery on the oil contract.

3. The price of gas is quick to go up during these so called crisis, but slow to go down after the crisis is over – why is this?

Gas prices at the pump go up because of an increase in the wholesale price – increasing wholesale prices force the stations to raise prices, otherwise they’d lose money. When the wholesale prices are going down, gas stations lower their prices in reaction to their competition. They never want to leave money on the table, so they compete back and forth. This happens much more slowly on the way down – as a station owner, there’s no incentive to lower your prices except for a lower competitor. If competitors don’t lower their prices, there’s no point in lowering mine!

4. In Vancouver you are paying over $1.30/litre at the pump, while in Regina it is closer to $1.19, and in Halifax a $1.25/litre. Why are we seeing such a fluctuation in prices across the country?

Gas taxes play the largest role in the variation of prices around the country. Other factors are zone pricing (different wholesale prices based on zones in a province), and competitive factors between stations.

5. Not only are gas prices rising sharply – but so is the traffic on your website Gasbuddy.com. What do you attribute this to?

GasBuddy traffic is up a lot recently because people are looking for a “good” deal on gas. People get more price sensitive when prices rise, as their budgets get stretched. The thing is, one quick tap on your smartphone (iPhone or Android, etc) can save you $5 or more by helping you find the cheapest gas.

6. Are we going to see a gas price war in this country anytime soon?

We are unlikely to see a gas price war anytime soon. The reason for this is that the gas stations don’t have much impact on the wholesale price of gasoline. They could start a gas price war, but it wouldn’t last long, as they’d be losing money for every litre that they pump.