It’s true — we’re getting hosed at pumps
Nothing, other than Tim Hortons and hockey, unites Canadians more than the feeling we’re getting screwed at the pumps.
Lately, the fulmination has been about the seeming disconnect between the price of crude and the price we pay for a litre of regular unleaded, which, go the diatribes, is unconscionably high. Raw oil is the basis of all refined fuels, goes the argument, so if the cost of the crude goes down, then the price of gas has to go down a commensurate amount. Otherwise, we’re getting squeezed, right?
And the raw numbers would seem to bear out a royal fleecing. Since its peak last July, West Texas Intermediate (WTI) crude has fallen from $103 US a barrel to a smidgen below $50 last weekend, a whopping 52 per cent drop. The price of gas, meanwhile, has fallen from a nationwide average of $1.40 to its current $1.08 — just 23 per cent.
So, yes, you’re right to think we’re getting rooked. It’s just not for the reason you think.
First of all, a surprisingly small portion of the cost of a litre of gasoline in Canada stems from the price of oil. In the U.S., the cost of crude can account for about half the cost of a gallon of gasoline. But, with our much higher taxation — ranging from 28.7 cents a litre in Ontario to 42.17 in Vancouver (before HST or GST!) — those plunging oil prices so often quoted in the news have even less effect on the price of gasoline here in Canada.
That’s not to say global economics don’t figure into our seemingly usurious pump prices. Indeed, according to Dan McTeague, senior petroleum analyst for gasbuddy.com, founder of tomorrowsgaspricetoday.com and an 18-year Member of Parliament for Pickering-Scarborough East in Ontario, one of the biggest issues is that crude oil and refined gasoline are priced on the world market. So, for instance, while refineries in the West might price their crude at the $50 a barrel that WTI now commands, Eastern refineries, because much of their oil must be imported, are paying the $60 that Brent crude currently costs.
And, McTeague says, the whole process is further complicated by refineries selling their end product according to futures pricing set on New York’s NYMEX exchange. With our loonie’s value plunging faster than the cost of a barrel of oil, it’s little wonder our gas prices are heading higher, despite the cost of oil continuing its downward spiral.
It gets worse. Not only do we pay world market pricing, but a significant portion of our gas — about 415,000 barrels a day or 1/6th of our total consumption — is imported from the U.S., primarily because some of the large conglomerates have chosen to shutter many Canadian refineries rather than upgrade them to meet modern environmental standards. That means when American refineries go offline for storms, strikes or hurricanes, our pump prices go up.
Even so, as I write this, the wholesale price of gasoline is still only 61 cents a litre, a far cry from the 106.9 cents my local retailer was charging the same night. Where’s the rest, you ask?
Well, in Ontario, Kathleen Wynne’s Liberal government adds 14.7 cents to the cost of every litre (and is reportedly eyeing a further carbon tax). Barely better, Stephen Harper’s Conservatives add a 10-cent levy on top of that. OK, that’s starting to add up, but it still only takes it to 85.7 cents a litre, pricier to be sure, but still some 20 cents shy of our rapacious 106.9.
It turns out we haven’t yet factored in the service station’s ante, and this is where McTeague, who fought for fuel pricing transparency during his time in Parliament, finds the most injustice.
In late January, in Toronto and some other major cities, oil companies raised the profit margin at their corporate-controlled pumps. Thinking we wouldn’t notice because pump prices were plunging — crude prices were just bottoming out — McTeague says the major oil companies gave themselves an extra penny in profit.
Add on the sales tax, and you get the final price per litre we have now.
What makes this especially egregious, McTeague said, is that “as recently as 1997, big oil said it could get by on retail margins of two or three cents a litre.” The reason, says McTeague, is that the major conglomerates were then foregoing profits in an attempt to squeeze independent gas stations out of business. They succeeded: try finding a mom-and-pop gas station now in a major Canadian city. With their near monopoly, they are now free to pay themselves handsomely, to the point — and let me repeat this — of raising prices even as the wholesale cost of gas was going down.