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Ever wonder how the price of fuel is set at the pumps?

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With the cost of gasoline the highest it has ever been in Saskatoon and Regina at $1.88 and $1.84 per litre, respectively, what factors play a role in determining the price?

University of Saskatchewan Edwards School of Business dean Keith Willoughby says the process consists of a handful of factors.

“It’s not a very complicated system at all, there are really four major factors that combine to produce what we pay at the pumps,” said Willoughby.

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Forty per cent of the price is based on the global market price of crude oil, which, according to Yahoo Finance, as of Monday is around US$117 a barrel. That is double the price of oil in December 2021 at US$68.

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Thirty-five per cent of the price is taxes (federal, provincial, carbon tax), 25 per cent is production costs and the last sliver is the profit margin.

University of Regina economics professor Jason Childs says there is a lot of saved money sitting in people’s pockets from the pandemic that will likely be spent on gas.

“There are pockets of people that continue to be paid what they were paid before the pandemic, but their expenses went way down. There is money in the system and it’s likely to be spent on fuel,” said Childs.

Oil demand during the pandemic dropped significantly. As countries including Canada reopen and people travel more, the demand has ramped back up. Countries like China still have extensive health protocols in place and they are not operating at full capacity.

Read more: Russia cuts off gas supply to neighbouring Finland over payment dispute

“Demand is skyrocketing, people want to drive more, things are more open, it takes a while to get the supply chain organized, get the supply up in terms of production,” Willoughby said.

Experts don’t see the price dropping much in the near future, even into next year. The Russian invasion of Ukraine is not helping matters. Many countries have put sanctions on Russian oil exports, meaning the third-largest producer of oil is off the market. Canada is the world’s fourth-largest producer of oil. The United States is number one and Saudi Arabia is number two.

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“We are seeing the demand for oil return to pre-pandemic levels. We are seeing that ramp back up. The infrastructure doesn’t exist to help move large chunks of oil around in Canada. Saudi Arabia, which is usually a swing producer, is choosing to hold the line and keep the prices high,” Childs told Global News over Zoom.

Read more: Average gas price tops $2 a litre in Canada for the 1st time

According to GasBuddy.com, the price of gas in Saskatoon on Monday was an average of $1.88 or as low as $1.82 per litre at Costco. In Regina, gas was an average of $1.84, with the cheapest being $1.74.

Vancouver has the highest price of fuel at the pump at $2.17, with some stations reading between $2.30 and $2.34 recently.

Alberta has the lowest gas prices at $1.70.

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