May 20, 2010

Oil prices down, but gas prices up?

POLITICS - The price of crude oil has dropped almost 20% in the last 3 weeks, but the price of gasoline has barely budged. This isn't the first time this has happened either. When consumers aren't paying attention the oil industry frequently gouges consumers on the listed price.

6 years ago the price of gasoline in Canada stayed pretty relative to whatever the price of crude oil per barrel was doing. If oil was trading at $60 / barrel then the price of gasoline would be about 65 cents per litre. If it was $80 / barrel, the gasoline price would be roughly 85 cents per litre... etc.

But right now the price of oil is roughly $69... which means the price of gasoline should be about 74 cents per litre. Except it isn't, instead its hovering around 98 cents per litre in Canada... a full 24 cents higher than it should be.

The gasoline/oil industry can come up with any number of excuses for this, but the one reason they neglect to mention is that Canadians have become used to the price of gasoline being roughly $1 / litre.

(For any Americans reading this, that would be roughly $3.80 per gallon. Americans should be thankful their government subsidizes gasoline prices more than the Canadian government does.)

Thus Canadians have simply become used to the higher prices... and the gasoline sales industry is basically gouging customers because we've become so used to the higher price.

So even though the price of oil has dropped almost 20%, the gasoline price has barely budged downwards. You could argue the industry is guilty of price fixing, which is ILLEGAL because its considered a form of hoarding, extortion and conspiracy.

But good luck proving that in court.

Environmentalists will be happy however. Higher gas prices means the general public thinks more about alternative energy sources like electric cars or hydrogen cars... as well as public transit and bicycles.

Gas price watcher Dan McTeague says Canada’s oil industry is poorly regulated and tends to “tack on” what he calls “extra mystery cents” to the wholesale price. “That’s why I’m getting a lot of letters from the public. How is crude going down and the price at the pumps not falling as much as they should?”

Oil execs blame the prices on everything from "summer gas", the summer driving season, more fuel efficient cars, more ethanol added, and the Canadian dollar has lost 2.5% of its value recently (as oil prices go down the Canadian dollar usually goes down).

Except what they fail to mention is that oil stockpiles are up, the debt crisis in Greece has put a damper on oil prices, there's no shortage of oil or gasoline right now and the wholesale price of gasoline has dropped significantly.

All things considered the price of gasoline should be a good 20 cents per litre cheaper than it currently is.

After all why should our governments subsidize oil prices billions of dollars per year to keep the prices low when the industry just raises the prices and gouges consumers anyway?

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