Economist links refineries to increase in gas prices
When oil prices crashed at the end of 2014 — from a high of $110 per barrel to roughly half within a few months, and eventually bottoming out at about $35 in early 2016 — a funny thing happened with Vancouver’s gas prices.
They went down a little, but not nearly the same as the bulk base price.
Canadian Centre for Policy Alternatives economist Marc Lee has taken a look at how gas prices have tracked over the past few years and found data that broke down where the increases were coming.
While the price of oil globally fell by 68 per cent, the price of gas in the Lower Mainland fell just 18 per cent.
And now local gas prices are actually higher than they were during their 2014 peak, while the global price of oil remains twothirds of its 2014 peak.
What Lee found was that the growth in prices was heavily tied to the resurgent price of crude, but also due to increased profits for refineries.
Taxes, which some have said is the big problem, have actually only gone up a comparatively small amount.
“In other words, refiners and retailers stepped in to take greater profits on the down side. Compare this to the almost instantaneous increases in price at the pump whenever there is an accident, bad weather or any other excuse that industry could use to justify a price hike,” he wrote for policynote.ca.
“The refining part is what really jumped out at me, I had no idea that that was going on,” he said this week of how oil companies reacted as crude prices were falling.
Gas prices have hovered around $1.50 in the Lower Mainland of late, but you may remember that prices at the beginning of 2016 were about $1.10. Some of the rise in local price from 2016 is due to a rebound in global crude prices, Lee notes. And there’s really no getting away from the going world price of oil, but a good chunk is due to a rise in “refining margin,” which is the amount of money the refineries that turn crude into gasoline and other fuels take for profits.
Since the first quarter of 2016, refiners are making 8.5 cents more per litre, and if you go back to what they were taking before oil prices peaked in mid-2014, refiners are taking in more than 20 cents now compared with then.
The Canadian Centre for Policy Alternatives, where Lee works, is a self-described independent, nonpartisan research institute that tends to be left-leaning in outlook.
But Lee had to give credit to the right-leaning Canadian Taxpayers Federation, a citizen’s advocacy group, for leading him to the data, which is available publicly on the website for The Kent Group, a petroleum-industry data company.
“I came across it because I got asked to do some commentary on a piece by the (CTF),” he said.
“So I have to add a little hat-tip to them.”
Lee’s calculations suggest oil companies made “$460 (million) to $690 million in price gouging ... just in the last year.”
He found it interesting that though what’s been going on with gas pricing isn’t in the broad public consciousness, Ontario’s new premier-to-be, Doug Ford, warned oil companies that when his government removes taxes on gasoline in his province, they had better reduce prices at the pump a commensurate amount.
As for a solution, Lee does wonder if we’ll start hearing about regulation of the fuel market.
Canadians are used to their hydro, cable and phone prices being regulated, after all.