Historicist: "The city that nobody loves"
Elsewhere in the Ist-a-Verse
Newsflash: Torontonians pay a lot for gas. This isn't news from the latest issue of Duh! Magazine, but a new report by the Canadian Centre for Policy Alternatives, which claims that Canadian drivers have been being disproportionately gouged for almost two years.
The CCPA report says that pre-2005 price fluctuations were apparently in line with the changes in supply, but the newest levels aren't justified based on refinery costs and normal profit margins. Torontonians, in particular, are being overcharged by about 15 cents per litre, and we fluctuate and pay demonstrably more than our neighbours at the border (diagram above). That's nothing compared to Vancouver, where they are apparently paying a staggering 27 cents too much per litre.
According to economist and CCPA associate Hugh Mackenzie, each extra penny per litre on gasoline generates an additional $1 million for the fuel industry. Based on Mackenzie's calculations, the CCPA has created an online gasoline "price gouge meter," where users can enter their local per-litre price and find out what it should be based on the U.S. dollar and the day's crude oil price.
A virtually instant trend shift happened on account of Hurricane Katrina in 2005, where the price of gas in Canada significantly favoured higher profit margins. After Katrina, gas prices more than doubled the increase experienced by crude oil, and at its highest point, was five times higher than the fluctuation in crude.
The Canadian Petroleum Products Institute says that gas pricing is complex and "misunderstood by consumers, media and even governments." They are also quick to point out that prices in Canada are on average 10-15 cpl higher because of additional government taxes, and that Canadians allegedly benefit from Canada's highly competitive marketplace. Unsurprisingly the CPPI is also vehemently against government regulation, stating (with straight faces) that "Canadians are wise gasoline shoppers who buy more frequently when retailers reduce their prices. Regulation would remove these opportunities." Apparently, "highly competitive" refers to how the four oligopolistic majors set regional prices and all the minors fall in line.
Nova Scotia, Newfoundland and P.E.I. are all price-controlled gasoline retail markets, which the CPPI claims cost customers an additional 1.5 cpl more. Nova Scotia even reinstated regulation in 2005, which had previously been abandoned in 1992.
The reality is that the usual excuses—which range from the legitimate crude oil costs to taxes to a refinery fire in Oklahoma—have little to do with producing gasoline in Canada. Taxes are a flat, per-litre percentage that doesn't rise when the crude price does, and crude oil costs virtually the same to produce as it did when Torontonians were paying less than 60 cents per litre.
The CCPA analysis outlines how, after the 2005 hurricanes in the U.S., gas prices should have been around 97 cents per litre; not the $1.30 per litre hit over the 2005 Labour Day weekend. This translates to the equivalent of $110 per barrel of crude. This month, for example, crude oil is priced at around $64 a barrel, which would indicate a current profit of $16-$21 million daily, according to the CCPA calculations. Around Labour Day, the excess profit would have been about $45 million per day at its highest point.
As written on stickers many retailers have posted at their pumps, crude is not the only factor in gasoline retail. There are taxes, profit margins, refinery costs and the cost for country-wide distribution, and pre-Katrina, the price fluctuations were relatively consistent with those factors. Yet the evidence seems to show the industry taking advantage of "psychological barriers" like natural disasters and holidays, where customers will already expect to pay more. In the case of Katrina, the pattern shows an abnormally large profit margin, which the petroleum industry justifies by claiming that the market is speculative and that many refineries postponed "upgrades" because of the hurricanes. Uh huh.
The fuel industry continues to insist that the pump price spikes over weekends and holidays are purely innocent, as are the daily fluctuations in morning and afternoon commute times. Toronto's gas prices are usually cheapest overnight or during the middle of the week in winter. Of course, this must have absolutely nothing to do with how that range curiously dovetails with the times when consumers are less likely to purchase gasoline.
Customers are therefore left confused, unclear on whose claims are more appropriate, or if the eye-catching pie charts at the pumps illustrating an apparently miniscule profit margin are accurate. Misguided consumer "brand" boycotts make no difference, as the fuel all comes from the same refineries and the petroleum companies continually buy and sell their surplus to each other at drastically reduced prices. In fact, such boycotts only hurt the individual service station owners, who don't hold sway over gas prices and who make much of their profit from the car washes and covenience stores tied to their stations. The only way to reduce gasoline prices on a consumer level is to use less gas overall.
Despite claims by the pump pimps that fluctuations in individual refinery supply cause unavoidable price spikes, we are in no danger of running out of gasoline, even though Canada has one of the world's highest usage rates per person. The rules of supply and demand are that because we increasingly drive more and perpetuate our obsession with the SUV, we will continue to require more and more gasoline.
Photo by dave_in_t_o from the Torontoist Flickr Pool.
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Good write up, however...
Nobody's left or unclear. Anybody who sat down and this matter a few minutes of thought would realize simple facts:
1. Capitalism... Oil companies want to make as much money as possible in any way that they can. They will use any legal and semi legal ways to do so.
2. Taxes... While gas tax is flat, GST and PST aren't, and the higher the price is, obviously the higher the cut to the government is. Why should the government enforce the prices and cut their own profits?
http:// en.wikipedia.org /wiki/Gasoline_tax#Canada
3. Canada... has very non confrontational people which translates to "i kinda care, but won't really do anything about it" for most people. You can't market control Oil companies because you have to get to work in the morning and need gas to do so.
Expect government to wag finger at oil companies and say "would you please don't do it if you may?" with obvious outcome.
Alex is very right with his last point. Marc's last point about our gas usage presents the very unfortunate truth that for us in this country, gasoline is an essential commodity. It may not be the case in the city, but for everyone living in the suburbs and especially for those living in rural areas there are either very few or no other options left but to use a car. Just focusing on myself as a suburban car user, I would not mind these ridiculous fluctuating gas prices that are obvious attempts to price gouge in the GTA if I knew that the 'substitute' good was at least increasing in efficiency (if not decreasing in price). The substitute good in this case is of course public transit, TTC + GO etc. And why shouldn't it? As Alex points out, as the cost of fuel goes up so does the profit for the government and that money should go directly into improving public transit... alas that does not seem to be the case as the Federal gov't seems to collect most of the money, and we know how generous they are towards cities. Fucking ridiculous really...
The higher the gas price the better. Maybe some people will reconsider the amount of gas they use and the choice of vehicle. The more they want to spend the more taxes are collected. If you are upset about the high gas prices, try looking up the prices anywhere in the world other than North America, then go trade in your gas guzzler for a compact or hybrid. Not only are they small, so people can see around you, they are small and easy to park in the city. Let's not forget about our little smog problem. Use less gas, or shut up and pay for your mistake.
When gas prices go up so do delivery costs.
With the exception of the GST, all other federal and provincial taxes are a flat amount per litre, so they don't go up when prices go up. The GST, as you know, would therefore account for only 6%.
The Ontario taxes amount to 14.7 cents per litre and the federal federal tax is 10 cents per litre.
The problem is that even factoring in taxes and deliver costs, the profit margin isn't normal. When delivery/refinery/whatever costs go up, the normal profit margin often more than doubles instead of scaling to the increase of infrastructure costs. The industry says this is because the market is speculative, and doing so allows them to "predict" future higher costs to they can, out of the goodness of their hearts, keep the costs down for the consumer.
Look at the top graph between Toronto and Buffalo prices, and one of the most interesting thing is how the prices fluctuate drastically even during the day or over weekends, whereas the American prices follow a smooth line that is hardly as volatile. Our line will always be higher because of taxes, but it should be mostly mirroring Buffalo's and also be somewhat averaged with the price of crude (bottom graph), even though there are other factors, like marketing costs. Vancouver should be furious.
I didn't see any mention of it in that article, but there were two major events in Ontario this past winter that could account for higher prices than seen in Buffalo.
The strike by CN Rail slowed the supply of gas, and a fire at an Ontario refinery caused additional shortages. These two events caused prices to rise and Ontario's reserve supply to be depleted. Gas prices are still being affected by these because the reserves have to be replenished as well as meeting regular demand.
I'm sure there are other factors involved, but I find it very conspicuous that these major, local, events aren't even mentioned when comparing prices over that period of time.