Cheaper crude not reflected at gas pumps
CALGARY Low oil prices are hammering Canada’s resource economy but drivers aren’t seeing the silver lining of equally low prices at the pump.
In its latest monetary policy report, the Bank of Canada this week pointed out that oil prices have dropped about 75 per cent from their peak in June 2014 but that gasoline prices have not fallen “as much as the reduction in crude oil prices would suggest, based on historical experience.”
Gasoline prices in Canada averaged $1.02 per litre in December when crude cost $27.40 a barrel, but when oil sold for the same price in January 2009, the average price for gas was 82 cents a litre.
“We’re being taken to the cleaners considering how low a barrel of oil costs these days,” said Alan Mauch in Vancouver, where gas is still averaging over a dollar a litre even as it hovers below 70 cents in parts of Alberta, as he filled his tank this week. “I think the oil companies are taking advantage of what we’re used to as far as pricing is concerned and they’re going to milk it for as long as they can.”
But analysts say it’s not that simple: the disconnect between low crude prices and what people pay at the pump is being caused by the low Canadian dollar, higher margins at refiners and increased taxes.
“The biggest factor right now is exchange rates; it makes a huge difference in the product prices we pay,” said Jason Parent, vicepresident of consulting at the Kent Group, which provides data to the petroleum sector.
He said gas prices in Canada need to be hiked to be competitive with U.S. markets to compensate for the low loonie, which has been bobbing around 70 cents in recent days.
Dan McTeague, a gas analyst at Gasbuddy.com, says drivers would be paying far less per litre if the Canadian dollar was at par.
“The weakness in the loonie accounts for over 12 cents a litre in lost purchasing power for motorists,” said McTeague.
And while prices haven’t dropped as much as drivers would like, they’re still taking advantage of cheaper gas and driving more. That has led to more demand for gasoline and, in turn, allowed refiners to charge more.
“Refineries have increased their margins,” said McTeague. “Wholesalers are making a significantly greater amount of money than they were in the past.”
Taxes play a much greater role than is normally assumed, he said.
“They have increased pretty much right across the country since 2008, and dramatically so.”
We are a green country. Canada proudly exports natural resources to help build the world. Everything we do, everything we sell, is done with a commitment by Canada to sustainability. Miro Cernetig, CEO, CityAge.