Gas price boosts hard to explain

Canadians are paying some of the highest prices they ever have for gasoline, even though the amount that fuel makers pay for the crude oil that goes into making it has been in decline for months.

Data released from Statistics Canada on Thursday showed the price processors pay for crude oil fell 2.4 per cent in February from January, on a seasonally adjusted basis, but the cost of gasoline from refiners rose 3.9 per cent.

It was third straight month crude oil prices have declined and second straight month gasoline prices have increased.

Michael Ervin, director of consulting services for Kent Marketing Services, a consultancy group for the petroleum industry, said there is a trend recently of higher wholesale costs for gasoline, translating into higher retail prices, despite lower crude oil costs in Canada.

“That’s not unusual, and it really illustrates something that I’ve been saying for years, and that is that crude oil is not the only determinant of fuel prices,” he said.

“There are far more important factors that are rarely mentioned in the press, and it has everything to do with supply and demand relating to the gasoline commodity itself.”

Ervin said it’s normal for gasoline prices to rise at this time of year in anticipation of the spring and summer driving seasons, which brings about higher demand for gasoline.

Kent Marketing Services’ weekly gasoline price survey showed Canadians paid an average of almost $1.33 a litre for regular-grade fuel this week, with motorists in such cities as Montreal and Vancouver paying more than $1.40. Gasoline prices have been rising steadily this year since averaging about $1.20 a litre at the start of 2012.

Earl Sweet, senior economist for BMO Capital Markets, cautioned against interpreting recent trends as price gouging. He noted that, over the past year, both gasoline and crude oil have seen hefty price gains.

“You just can’t look at it on a month-to-month basis,” Sweet said, noting that there can be lags between when refiners buy crude oil and when that specific batch gets refined into fuel.

Sweet added that a lack of refining capacity in North America has also been a factor in higher gasoline costs throughout the continent, including Canada. He said some refineries in the northeastern U.S. have closed down because they were not able to pass on the higher costs for crude oil on to gasoline consumers, largely because of economic problems in the U.S.

Dan Mcteague, a former Toronto-area Liberal MP who is now operating a gasoline-price analysis website, said market speculators are also playing a role in driving up prices. Mcteague was referring to those who buy gasoline for future delivery, not because they want the commodity, but because they believe they can sell such contracts at a higher value later on.

“This contorts markets and really results in consumers and even businesses paying what I think are unfair prices (for gasoline),” he said.

Dealing with this problem, he said, would require international co-operation to better regulate the activity of speculators on commodity markets.