Where Does Your Gasoline Dollar Go?

There are three major components to gasoline pricing: crude costs, marketing and refining margins and taxes. And they vary according to world demand for, and supply, of oil; North American demand for, and supply of, gasoline; and where you live in Canada.

In 2009, when Canadian Par crude oil averaged $65.19 per barrel, crude costs accounted for 43.7 per cent of the cost of gasoline, taxes accounted for 33.2 per cent and refining and marketing accounted for 23 per cent. As oil prices rose in 2010, crude costs accounted for 47.3 per cent of the cost of gasoline, taxes for 33 per cent and refining and marketing 19.7 per cent. Thus far in 2011, Canadian Par prices have averaged $95.40 per barrel, and crude costs have risen to 49 per cent of the cost of gasoline, taxes for 30.8 per cent and marketing and refining 20.2 per cent.

The reason taxes have fallen as a percentage is that most of the tax is a fixed amount per litre. For example, the federal excise tax in gasoline is a flat 10 cents per litre, no matter the total pump price. The same is true for some provincial taxes.

Most of the regional differences in price are due to taxes varying from province to province and at time from city to city. In Edmonton, as in all of Alberta, there is no provincial sales tax. In cities such as Montreal, Vancouver and Victoria, there are municipal taxes and in Vancouver, there is a carbon tax.

More Speculation on Gasoline Prices

You know gasoline prices must be getting out of hand when the federal government promises to “look into it”. But don’t hold your breath. The government has investigated collusion in gasoline pricing six times since 1990 and has found no evidence to support it.

But it’s not only that gasoline prices are high, it’s that over the past week prices have fluctuated as much as 4.5 cents over night. And to many people, that just doesn’t make sense.

We all understand that gasoline prices are heavily influenced by crude oil prices, as shown in the graph below. And we’ve all been told that oil prices are at near record levels because of political instability in the Middle East and North Africa.

 

We’ve also been told that recent flooding on the Mississippi River in Tennessee has caused refineries in that area to shut down, causing gasoline shortages.

But a closer examination of the unrest in the Middle East and North Africa reveals that the countries where the protests are occurring export about 1.9 million barrels of oil per day, or about 11 per cent of the region’s total, an amount that Saudi Arabia can more than accommodate merely by opening the taps a quarter of a turn.

And according to Reuters, there are concerns that refineries may have to shut down, but as of Thursday, May 12, none have done so.

One has to wonder what is really behind the price increases. And one has to really wonder hard about paying $1.32 per litre Monday and $1.36 per litre Tuesday when Tuesday’s gas was in the service station’s storage tank on Monday with Monday’s gas.

The government’s investigation will probably take several months. Meanwhile, there’s plenty of time for speculation.

The Butterfly Effect and World Oil Prices

The butterfly effect is an aspect of Chaos Theory that suggests the flap of a butterfly’s wings in one part of the world could result in a tornado in another part of the world. This could explain why Canadian gasoline prices are rising in response to the unrest in North Africa and the Middles East when we’re a net exporter of oil.

Prices for benchmark crudes, West Texas Intermediate (WTI), North Sea Brent Blend (Brent) and the OPEC Basket (OPEC) generally act in concert, with WTI trading at a $1.50 to $2.50 premium to Brent. However, since late last year, it has been trading at a discount. And since the beginning of 2011, the differential between Brent and WTI has grown to more than $14.50 US.

This makes sense. In fact it’s a wonder the differential isn’t bigger.

The gap began to widen mid-January with the unrest in Tunisia. Tunisia isn’t a large exporter of oil, and most of its exports go to Europe. As that supply was threatened, European oil prices rose. Then, at the end of January, came the ouster of Hosni Mubarak in Egypt. Again not a big exporter, and most of its oil goes to Europe. But the big worry was that the turmoil would interrupt oil traffic through the Suez Canal. Again, this would affect Europe more than North America because most oil imported by the U.S. from the Middle East arrives via supertanker around the Cape of Good Hope.

To this point, Brent prices were rising. WTI prices were steady to slightly lower because of unusually large product inventories in North America. The gap continued to widen. And it makes sense. Europe was being impacted more than North America by the events in North Africa.

That began to change in mid-February with the political revolt in Libya. The Brent to WTI differential remained, but the difference was that WTI prices had begun to increase as well.

Libya produces about 1.6 million barrels of oil per day, and if that were interrupted, OPEC members could easily make up the short fall. So it’s not really a question of oil. The primary fear is that the turmoil in Tunisia, Egypt and Libya could easily spread to other major oil exporters, such as Bahrain, Algeria, Kuwait and the United Arab Emirates, causing much tighter supply in both Europe and North America.

Consequently, since February 15, WTI prices have risen $17.10 US to $101.91. Canadian oil prices have risen in tandem with WTI and Canadian gasoline prices have risen more than six cents per litre.

So, going back to Chaos Theory, the wing-beat of our butterfly is the worry that more unrest in the Middle East might occur and if it does, it might cause oil shortages in countries that import most of their oil. The tornado is gasoline prices in Canada, a net exporter of oil, rising.

The Great Oil Sands Journey Part 4

Everyone wants a piece of the plump pump pie

Now you know how bitumen is separated from the sand and then upgraded and refined into a specific product. Once the oil is refined into, let’s say, gasoline – because it accounts for about 40 per cent of the crude oil volume processed by Canadian refiners – it is ready to be shipped via pipeline and sold on the market.

Wells to Wheels
Part four of a five-part series

Before we get into the details of how gasoline goes from your wheels to the wind in the form of emissions, we should quickly address another important topic relating to the marketing of oil products, like gasoline…the price.

The cost of gasoline is like Calgary’s weather. You don’t like it, wait five minutes. It tends to vary from day to day and city to city for a whole host of different reasons. The most dominant reason for local price changes is local competition among stations. ‘Joe Fuel’, owner of ‘Pass ‘n Gas’ fueling station has a lot of factors to consider when he sets his price. He has to find a price that is high enough to cover all his business operating costs, such as the wholesale cost of the gas and rent. Yet he also has to find a price that is low enough to attract customers.

Now, if ‘Joe Fuel’ sees that ‘John Juice’, owner of ‘Pump ‘n Ride’, from across the street has raised his price a little, Joe is probably going to adjust his price accordingly. It’s only fitting that the price of something as invisible as gas would be dictated by the invisible hand… think grandfather of capitalism, Adam Smith. Think back to grade nine social studies and laws of supply and demand. Something as simple as having a refinery break down can affect the supply and therefore the price shoots right up. Every year we see evidence of this as summer gas prices hit a peak when refineries close down temporarily for annual maintenance (decreasing supply) and everyone gets revved up to go on road trips (increasing demand).

If those factors aren’t enough, consider that wars can affect the supply of oil to Canada, and extreme weather conditions, like Hurricane Katrina, can affect both the supply of oil and gasoline.

“Ultimately, the full price you pay at the pump can be broken down into three components: 24.1 per cent goes to refining and marketing, which is all the stuff we just talked about, like operating costs and margins. 46.2 per cent is crude oil costs. Finally, the last component is as certain as death…taxes. The government also getst a piece of the pie…31.9 per cent to be exact.”

Next week: Wheels to Winds – Idling cars are the devil’s greenhouse

Prowling the Pumps – October 14, 2008

Canadian Gasoline Prices

Average across Canada

An even bigger drop this week – 5.9¢ per litre to $1.069 per litre. Our hypothetical 80-litre tank was $4.726 less expensive to fill this week than last.

Gasoline prices slid everywhere except in Prince Edward Island, where they stayed the same as last week. The steepest drop, 9.9¢ per litre occurred in British Columbia.

Overall, the average gasoline price in Canada has dropped 31.4¢ per litre since its all-time high of $1.383 per litre during the week of July 15. And this means that our hypothetical 80-litre tank now costs $25.12 per litre less than it did only three months ago. The reasons – declining demand for gasoline and cheap oil.

Least Expensive Gasoline in Canada (per litre)

This week makes the first since we began prowling the pumps that there is one, let alone two, cities where the average price of gasoline is less than a buck. Of course they’re Kingston and Ottawa. But there’s hope for the rest of us yet.

Most Expensive Gasoline in Canada (per litre)

Despite falling 20.7ȼ, since its peak, the priciest of the pricey five, at $1.369 per litre is still expensive. Think of it this way: despite dropping 20.7ȼ, it’s still higher than the least expensive gasoline ever rose since we started tracking gas prices.

It doesn’t look to us that the bail-out package has brought any stability to the markets. This past week, commodities, specifically oil, were hit hard, with WTI dropping to below $80.00 US per barrel for the first time since last year. Unless the markets reverse their current downward trend, the price of gasoline is headed down too.

We’ll see what happens next week.

Mo money, mo carbon

The why’s of rising gasoline prices have never concerned Canadians as much as their practical consequences — higher prices at the pumps and less money to be spent on life’s essentials. But while we all have to deal with the consequences of more expensive fuel, the distribution of those consequences isn’t necessarily equal.

As reported by the Victoria Times Colonist, a report by B.C.’s provincial government found 18 per cent of the province’s residents are living in “energy poverty.” With 17 per cent of their income diverted to energy costs, these low-income Canadians stand to be harmed disproportionately by increasing fuel prices.

But if the provincial government’s findings seem to indicate that lower-income Canadians are liable to trim their energy use in light of soaring costs, another report by the Canadian Centre for Policy Alternatives (CCPA) cautions that even low income Canadians have carbon footprints many times as large as those found in developing nations. Just as a select percentage of Canadians are being affected by rising fuel costs, though, another segment is using more than their fare share.

In that same report, the CCPA revealed that the richest 10 per cent of Canadians have carbon footprints a full 66 per cent higher than average Canadians (12.4 hectares per capita). With the lowest 60 per cent below the Canadian average of 7.5 hectares per capita, the highest 10 per cent enlarge their footprint in mobility, goods and services (55 per cent of their footprint), compared with lower-income Canadians’ emphasis on necessities like food and housing (70 per cent).

The two reports show that while Canadians may be unified in their distaste for paying more for a commodity we want to buy, the impact of those prices and the ways we use our increasingly expensive fuel are anything but universal.