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Toronto’s Feeling a Little Gassy
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.
