Why is gasoline getting more expensive in Canada, even though the country produces oil itself

Canada is one of the world's largest oil exporters. It has its own oil, its own fields, its own pipelines. And yet, gas at the pump now costs $1.86 CAD per liter. Back in late February, it was around $1.30 CAD, and by mid-March it had jumped to $1.55 CAD. Basically all the savings Canadians got from scrapping the federal carbon tax have evaporated. How is this even possible? Let's break it down—because this directly hits the wallet of every family living in Canada or planning to move here.

The global market sets the price—not local production

Here's the main thing many people don't get: gasoline is a commodity traded on the global market. Not the Canadian market—the global one. Canadian refineries—whether they're processing domestic or imported crude—don't set the price, they take it. The cost of crude is determined by global benchmarks.

Brent crude, which traded comfortably around $60 a barrel for most of 2025, suddenly shot past $100 in March 2026. According to the International Energy Agency, over 3 million barrels per day of Middle Eastern refining capacity was shut down. The main reason? The threat of disrupted shipping through the Strait of Hormuz. About 20% of the world's oil supply flows through this 55-kilometer waterway. Analysts had warned for years that closing the Strait of Hormuz would be a catastrophic scenario. Well, it just became reality.

On March 11, 2026, member countries of the International Energy Agency made an unprecedented decision: release 400 million barrels from strategic reserves. The largest coordinated action in the agency's history. The U.S. Department of Energy authorized the release of 172 million barrels from the Strategic Petroleum Reserve, starting March 16. But even that didn't stop prices from rising—that's the scale of the problem.

Four components of pump prices

According to Natural Resources Canada, the retail price of gasoline consists of four components.

First—the cost of extracting crude oil. Exploration, extraction—all of that costs money. Second—refining margin: crude oil needs to be turned into finished gasoline, and that's not free either. Third—retail margin: running a gas station, staff, equipment. And fourth—taxes: provincial, federal, and in some cases municipal fees.

Taxes are actually the second-largest component in the final price after the cost of oil itself. Unlike other factors, taxes are fixed. But the situation varies wildly from province to province. All gasoline sales are subject to the federal goods and services tax and excise tax, but provincial rates across different regions are like night and day.

Why having "our own" oil doesn't make gas cheaper

The key Canadian oil benchmark—Western Canadian Select (WCS)—is a blend of heavy oil with bitumen and diluents. It's significantly heavier than light crude and requires much more processing to produce gasoline and diesel. From 2008 to 2018, WCS sold at an average discount of $17 compared to the WTI benchmark. And in fall 2018, the gap hit a record $50 per barrel. So Canadian oil is cheaper on the world market, but more expensive to refine.

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WCS is produced in Alberta—a landlocked province. The oil has to travel huge distances—by pipeline or rail—to refineries. Lack of direct access to coastal markets means transportation costs eat into the net price producers receive, which explains the discount.

Meanwhile, most North American refineries are already operating at or near maximum capacity. Building a new refinery costs over $2 billion CAD. Industry profitability has been relatively low for the past two decades, and environmental regulations seriously limit where you can even build. That's why no new capacity is coming online.

The problem is also largely explained by lack of pipeline capacity. Despite increased oil production in recent years, Canada hasn't managed to build a single major pipeline, leading to production significantly exceeding transportation capacity.

Regional differences—from 129 to 179 cents per liter

Now for what directly affects where you choose to live. In Edmonton, a liter of gas costs between 128.9 and 135.8 cents. In Vancouver, drivers pay around 178.9 cents. That's a difference of almost 50 cents per liter. On one tank, that's noticeable—over a year, it's serious money.

There are several reasons: different taxation between provinces, transportation costs through the Rocky Mountains, sales volume at specific stations, and level of competition. Where there are lots of gas stations, prices are lower. In remote communities, stations sell less fuel and have to raise prices to cover fixed costs.

Important detail: at 83% of gas stations, pricing decisions are made by independent owners. Only 17% of locations have prices controlled by major refining companies. The market is completely decentralized.

And don't expect the government to freeze prices. Canada doesn't regulate oil and fuel prices at the federal level—it's a market approach. Some provinces have tried regulating gas prices, but the results were modest: prices didn't drop—they just became slightly more stable.

Hit to the family budget—nearly $1,000 CAD per year

In the two weeks since the crisis began, average prices have risen by about 35 cents per liter across the country. Annualized—that's about $500 CAD in additional expenses for the average household. Just on gas.

But the cascading effect is even more serious. Agriculture is one of the most energy-intensive industries. Transportation, production—everything depends on fuel. Economists estimate that a sustained 50% increase in oil prices will raise food costs by about 1%, adding roughly $75 CAD per year for a typical household. Groceries will cost more, delivery will cost more, everything will cost more. Combined, the hit to a family's budget could reach nearly $1,000 CAD per year.

Economists warn that the sharp rise in gas prices could wipe out recent progress in reducing inflation in Canada. Back in February, the annual inflation rate slowed to 1.8%—below the Bank of Canada's 2% target. Bank of Canada Governor Robert McLellan said that with inflation near target, the risk of higher energy prices quickly spreading to other goods and services appears contained, but the longer the conflict continues and the wider it spreads, the greater the risks.

Analysts also note that fuel retailers in North America are likely to pass higher gas prices on to consumers, and they see a risk of continued upward pressure on prices.

But there is some good news. Gas still accounts for about 3% of household spending—that's the middle of the 2.5–4% range observed since the mid-1950s. Canada today is objectively better prepared for energy shocks than before: the amount of energy needed to produce each dollar of GDP has fallen by roughly half compared to the 1970s. The economy has become significantly less energy-intensive. But your wallet still feels it.

What This Means for Those Planning to Relocate

Choosing a province for living in Canada isn't just about immigration programs and the job market. It's also about the cost of everyday life, including fuel. Alberta has traditionally remained one of the most affordable provinces for gas prices, while British Columbia is the most expensive. A 50-cent-per-liter difference is real money that you need to factor into your budget.

For comparison: in May 2022, the average price per liter of gas in Canada reached or exceeded $2 CAD per liter. In oil-producing Alberta, the cheapest gas at that time cost around $1.62 CAD, while in British Columbia the price was already at $2.18 CAD. Historically, the average price for the period from 2016 to 2026 was $1.51 CAD per liter, with a low of $0.91 CAD in March 2020 and a high of $2.30 CAD in June 2022.

It's also worth noting that against the backdrop of rising cost of living, gas prices remain a concern for many Canadians even after the federal consumer carbon tax was eliminated. The Canadian Taxpayers Federation points out that drivers are still paying more at the pumps due to a separate federal climate policy introduced in 2023.