Democracy Gone Astray

Democracy, being a human construct, needs to be thought of as directionality rather than an object. As such, to understand it requires not so much a description of existing structures and/or other related phenomena but a declaration of intentionality.
This blog aims at creating labeled lists of published infringements of such intentionality, of points in time where democracy strays from its intended directionality. In addition to outright infringements, this blog also collects important contemporary information and/or discussions that impact our socio-political landscape.

All the posts here were published in the electronic media – main-stream as well as fringe, and maintain links to the original texts.

[NOTE: Due to changes I haven't caught on time in the blogging software, all of the 'Original Article' links were nullified between September 11, 2012 and December 11, 2012. My apologies.]

Thursday, January 28, 2016

Canadians not getting full benefit of falling crude prices

Prices at the gas pump fell 4 per cent in December, but crude prices fell by more than three times that amount during that time.

Gasoline prices in Canada averaged $1.02 per litre last month, when crude averaged $37 a barrel (U.S.). But in February 2009, when oil sold for $39, the average price for gas was about 15 per cent cheaper at 85 cents a litre.

If you’re bewildered by this math, you’re not alone.

The Bank of Canada also believes Canadians aren’t getting the full benefit of the plunge of oil prices at the pump.

“Although gasoline prices have declined, they have not fallen as much as the reduction in crude oil prices would suggest, based on historical experience,” the central bank said in its Monetary Policy Report last week.

The bank noted a growing gap between oil prices and pump prices in the second half of 2015, when crude fell sharply. Oil prices have fallen by 75 per cent since mid-2014.

BMO chief economist Doug Porter said the price discrepancy could be a drag on consumer spending in an already sluggish economy.

“Consumers don’t have as much left in their wallet after filling up that they could be spending on other things.”

Canadians who suspect they’re being price-gouged aren’t far off the mark — the companies who refine crude into gasoline are taking a bigger piece of the pie, said Robyn Allan, an independent economist in Vancouver.

The former president and CEO of the Insurance Corporation of British Columbia compiled a historical analysis of refinery and marketing margins after feeling she was being ripped off at the gas station.

Between 2000 and 2014, refining and marketing margins averaged 17.7 cents a litre. But in 2015, the average margins grew to 28.9 cents per litre, she found.

“An average of 11.2 cents per litre more was charged in 2015 and that’s pure profit,” she said.

That average refinery margin grew to 32.3 cents per litre in the first few weeks of this year, as oil prices fell rapidly to below $30 a barrel, she noted.

“Big Oil is benefitting from consumers and businesses at the expense of the Canadian economy.”

Oil companies are keeping more profits to refine the oil into gasoline in order to offset what they are losing in production profit, which increases prices at the pump, said Roger McKnight, chief petroleum analyst for En-Pro International Inc.

Oil refiners took an “astronomically high” share of the profit pie in December because the price of crude was dropping dramatically, said McKnight.

“The oil companies thought ‘we have to make this up somewhere or we’re going to have to shut things down,’ so they increased the refining margin,” he said.

“The consumer at the pump is making up for the financial distress of the oil company.”

Concentration in Canada’s oil sector over the past few decades has left a handful of big oil companies capable of controlling wholesale gas prices and retail prices, said Dan McTeague, senior petroleum analyst at GasBuddy.com.

“The sad reality is that there is an utter and complete lack of competition at the wholesale level,” he said.

Crude prices are just one piece of the puzzle that comprise gas pump prices, and while the weak loonie is keeping gas prices relatively high, that’s only one part of the story, he added.

Compared to February 2009, when oil was $39 a barrel and gas went for 85 cents a litre, consumer are forking out more for many pieces of the gas pump equation.

Today, we’re paying about eight cents more a litre in taxes, while refiners have added five cents to their margins since 2009. Retail margins have increased by two cents a litre, while the difference Canadian dollar accounts for the rest, he said.

One popular analogy goes: Pump prices are a sandwich composed of crude prices, refining costs and taxes. If the price of one component of the sandwich (crude oil) is cut in half, the entire sandwich doesn’t sell for half off, it just gets slightly cheaper.

With a file from The Canadian Press

The components of pump prices:

The wholesale price:

The wholesale gas price in Ontario tends to move alongside that set on the commodities market in New York Mercantile Exchange, which changes on a daily basis. In the U.S., where there is more competition, the NYMEX price is seen as a ceiling for prices at the pumps, gas analyst Dan McTeague says, while Canadian companies use it as a floor.

The refiners:

The refining margin, or “crack spread,” is the difference between the price of crude and the wholesale price. The big oil companies have an “upstream” side — exploration and production — as well as a “downstream” side — refining and marketing. The price for oil is now so low that it’s eating into their bottom lines. To offset that and avoid a loss, they charge more to refine the crude into fuel for cars.

The loonie:

Commodities such as oil and wholesale gasoline are priced in U.S. dollars, and with a loonie being worth just 70.67 cents (U.S.) on Friday, it costs a lot more to fill up. Oil around $30 a barrel amounts to $42.36 Canadian. Gas analyst Dan McTeague says if the loonie was at par, Canadians could be saving another 14 cents a litre.

The taxes:

The federal government collects about 10 cents a litre, while the provinces collect anywhere from six to 16 cents per litre. Ontario’s tax per litre is a mix of a fixed price of 14.7 cents and the 8 per cent provincial sales tax portion of the HST on the gas price. Based on Friday’s wholesale prices, taxes amounted to an average of 35 cents per litre, McTeague calculated. In the U.S., consumers pay an average of 12 to 18 cents a litre in taxes.

Original Article
Source: thestar.com/
Author:  Sunny Freeman

No comments:

Post a Comment