Small Realities

Inside the mind of Lance Schonberg

It Takes $55 to Gas Up My Rollerskate

This is the car I drive.

It’s a Honda Fit.  Has a 41 L (10.8 gal tank).  It’s basically a rollerskate with an engine strapped on, but, depending on what time of year it is, it gets me up to 700 km per tank (40-ish miles per US gallon, mostly highway driving).  Not bad.  Right now it can cost me $55 to fill.  Not good.  I’ve been watching the price of gas go up and up over the last few months, and I’ve been giving things some thought.  Let me see if I have this right:

Price Gouging is when something is priced higher than is generally considered reasonable and fair, particularly when no alternative source or retailer is available.  So when a commodity, say oil, goes down in price, but a second commodity derived from the first, say gasoline, goes up, this could seem like a prime example of Price Gouging.

Price Fixing, on the other hand, is an agreement between theoretical competitors providing the same good or service, say gasoline, all set their prices to the same approximate (or exact) level.

Has anyone noticed the record profits the oil companies have been posting lately?  I’m not making any accusations, but it does seem to be a little on the suspicious side that the price of oil has gone down significantly in the last little bit while the price of gas just keeps going up.  Now, we all know that there’s more to the price of gas than just how many dollars it costs to buy a barrel of oil.  Aside from the taxes, there are those mysterious refining and marketing costs and taxes of various types and at various levels of government.  It’s not necessarily a linear thing.

But what doesn’t make a lot of sense to me is that a couple of summers back (2007, I think), when oil was flirting with $140/barrel (and maybe thinking about $150, analysts said), we were paying about $1.35/litre where I live.  Oil closed at a touch over $99 as I write this and the gas stations I noticed on the way to work this morning all have prices between $1.36 and $1.38 per litre.

At the risk of offending people, WTF?

From the 2007 Petro Canada Pie Chart (the only one easily available online—I’ll try to update the next time I get gas) Crude Oil makes up 47% of the price of gas (Taxes 32%, Refining & Marketing 17%, Profit 3%, and all of that only adds up to 99%).  Let’s use that as a starting point.

(If you live in the US, from here on in multiple everything by four to read things in gallons and $/gallon.  Sorry.)

Gasoline taxes haven’t changed appreciably in the past four years since most of them are set at a fixed rate and only the GST/HST (depending on where you live) is a percentage of the total price.  So something else must have changed.  Oh, that’s right.  Oil is down more than $40 per barrel, or almost 29%.

<Typing numbers into a spreadsheet> Rough math: $1.36 per litre at the pump means $0.64 per litre in oil.  So, either Petro Canada is getting 30% fewer litres of gas out of that barrel of oil than they were 4 years ago, or gas is costing them 18.3 cents per litre less to produce than it did four years ago because of reduced crude oil costs.  That 18.3 cents per litre must be going somewhere, since the pump price is a little higher than it was at the 2007 high so what else might have changed?

Crude costs are covered.  Taxes are mostly static, and since the total price is about the same, the share of Sales Tax is going to be about the same, too.  Maybe it’s gone into refining and marketing.  Everything gets more expensive over time, right?  That’s inflation.  Yeah, increased refining and marketing costs makes sense.

Seriously?  You’d like me to believe your refining and marketing costs have gone up 80% in the past four years?  I can’t imagine the level of mismanagement and accounting irregularities that would be necessary to manage that.

So crude is down, taxes are more or less the same, refining and marketing aren’t managed any worse than they were in 2007, so where…

Ah-ha!  It went into profits, didn’t it?  Come on, you can tell me.  I mean, every oil company posting profits and earnings lately is posting record profits and earnings.  So much so that there are Energy Hearings going on in Washington at the moment, and in Canada, our Industry Minister, representing a government with a long history of being willing to bend over for big business, gave a press conference in which he publicly stated that he wants the petroleum industry to explain how the pump prices are set.  Wow, if the Conservatives are worried about business practices in an industry, you know something must be up. (Opposition parties, of course, are coming out hard on poor Tony Clement for taking so long to clue in and offering mere Parliamentary Hearings to figure things out.  Why, if they were in power, things would get done, dagnabbit.)

(As a side note, if you live in Canada, and are curious about just how much you’re being ripped off at the moment, the Canadian Centre for Policy Alternatives has set up this neat calculator.)

So I think that covers Price Gouging pretty well.  Now, if someone can explain to me how every oil company’s refining and marketing costs are exactly the same so that they’re all able to charge roughly the same (inflated) price per litre of gas, I’d really appreciate it.

(And no, I didn’t convert between US and CAN $ for any of this.  We’re in the vicinity of par at the moment, and I didn’t feel like adding the extra calculation.)


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