GETTING HOSED AT THE PUMPS

For the last couple of months, the world’s oil markets have been chaotic due for the most part by speculators on the world’s markets. There has been much in the news as to the reasons that energy prices are staying way up there. It seems that there are now daily occurrences to justify the high price of crude. The weather, of course, does have an impact, as when Katrina roared up the Gulf of Mexico. Oil rigs out of service mean less production. Refineries shut down mean less supply. There are terrorist attacks on pipelines, labour disputes in oil producing countries, and of course OPEC, our good friends in the Middle East and elsewhere. They can drive price up or down by simply opening or closing their taps.

With all of the reasons being thrown at us, Canadians, and those who live elsewhere, can often be heard complaining about the price of gas. There is speculation that price fixing abounds, and it is hard not to feel that way. When three different oil companies change their price at the exact same time, and have the exact same price, to the tenth of a cent, something is wrong in WhoVille.

Let’s take a look at a website. It is pretty revealing, but not much has been made about it. It is called Shell.ca, and is owned by none other than Shell Canada. Their website reports the following:

Over the long term, changes in the world price of crude oil are reflected in the wholesale and retail price of refined products such as gasoline, diesel fuel, jet fuel and home heating oil. In the case of regular unleaded gasoline, industry analysts suggest that every one US dollar change in the price of WTI crude will create a corresponding one CDN cent per litre change in the retail price of gasoline.

The main point is that prices should rise in Canada, according to Shell Canada, by about 1 cent Canadian per litre for every $1 US increase in crude. Their website also reports that at the height of the first gulf war in 2000, crude prices hit a peak of $56 Canadian. Crude closed earlier this week at $63 Canadian, a difference of a whole $7 dollars. By Shell’s own estimates, displayed on their own website, the price of gas should be around 7 cents more than it was in November 2000. This would equal 86 cents per litre, including taxes. We are currently at 99.3 cents, or a gouging of 13.3 cents per litre.

On an interesting note, on my way home from Thunder Bay in the summer of 2004, while gas was 75 cents in Toronto, I paid 99.9 cents/litre for regular gasoline in Marathon, Ontario, where Esso and Petro both were gouging travelers at their stations on the highway, neither of which had a displayed price.

Petro Canada’s website is even more interesting. It states that the price for Edmonton crude in Nov. 2000 averaged $52.79 CDN, while last month it averaged $78.97. Again, the difference is an astonishing 50% over the prices endured during the first gulf war and is caused mainly by commodities futures being speculated. However, when price gouging drove the price of a litre of gas to $1.33 CDN per litre last month, this was a 51% increase in the pump price from 88 cents per litre two months prior. In those two months, the price of crude rose just under 13%. Add 13% to 88 cents and you get 99.4 cents which is where gas is now. Everything that has been charged to Canadians over this price is unjustified. I guess the 1 cent for every dollar rule doesn’t factor in greed.

On August 16, 2005, the average Canadian price of regular gasoline was 1.045/litre, more than 10 cents higher than it was only three weeks before, when it was at 94.0 cents/litre. This is an increase of greater than 11%. Prices in Thunder Bay, Ontario were even more shocking and rose almost 17 cents/litre to a price of 1.099 cents/litre, or an increase of almost 18%. while crude prices rose 7% for the same three weeks.

While many people think that the huge disparity at the pumps is caused by events such as hurricanes, think again. These events do have enormous impact on commodities markets, thus affecting the price of oil. Other events such as shortages, higher demand, and reductions in refining capability all play a part as well. Again, this affects the price of oil, which is steadily climbing. The price of oil in turn has a direct impact on the price we pay for gasoline. The devastating hurricanes in the Gulf of Mexico, as well as the refining shortages and a drop in supply have already been figured into the cost of oil. What is happening right now at the pumps, with the cost of gas spiking all over the country by up to 70%, is simply opportunistic gouging. I would even dare to say that these stations and companies are profiteering. They are spiking the price by playing on our fears. They know full well that many of us still need to drive to work.

If you feel like you are being robbed, you probably are. I am sure that the petroleum industry could rework these numbers to tell whatever story they want to spout, but numbers just don’t lie. Did I mention that our prices are on average 25% higher than those of our southern neighbours?