Falling oil prices not reflected at the pump as low dollar, refiners take toll

CALGARY - Low oil prices are hammering Canada's resource economy but drivers aren't seeing the silver lining of equally low prices at the pump.

See Full Article

In its latest monetary policy report this week, the Bank of Canada pointed out that oil prices have dropped about 75 per cent from their peak in June 2014 but that gasoline prices have not fallen "as much as the reduction in crude oil prices would suggest, based on historical experience."

Gasoline prices in Canada averaged $1.02 per litre in December when crude cost $27.40 a barrel, but when oil sold for the same price in January 2009, the average price for gas was 82 cents a litre.

"We're being taken to the cleaners considering how low a barrel of oil costs these days," said Alan Mauch in Vancouver, where gas is still averaging over a dollar a litre even as it hovers below 70 cents in parts of Alberta, as he filled his tank this week.

"I think the oil companies are taking advantage of what we're used to as far as pricing is concerned and they're going to milk it for as long as they can."

But analysts say it's not quite so simple: the disconnect between low crude prices and what people pay at the pump is being caused by the low Canadian dollar, higher margins at refiners and increased taxes.

"The biggest factor right now is exchange rates; it makes a huge difference in the product prices we pay," said Jason Parent, vice president of consulting at the Kent Group which provides data to the petroleum sector.

He said gasoline prices in Canada need to be hiked to be competitive with U.S. markets to compensate for the low loonie, which has been bobbing above and below 70 cents in recent days.

Dan McTeague, a gas analyst at Gasbuddy.com, says drivers would be paying far less per litre if the Canadian dollar was at par.

"The weakness in the loonie accounts for over 12 cents a litre in lost purchasing power for motorists," said McTeague.

And while prices haven't dropped as much as drivers would like, they're still taking advantage of cheaper gas and driving more. That has led to more demand for gasoline and, in turn, allowed refiners to charge more.

"Refineries have increased their margins," said McTeague. "Wholesalers are making a significantly greater amount of money than they were in the past."

Margins and costs vary widely across Canada and are vulnerable to regional bottlenecks. The prairies were hit with a price spike last summer when a major Midwest refinery went offline in the U.S., while Vancouver has recently been hit with higher prices because of refinery issues on the West Coast.

"Refined products are very separate commodities from crude oil; they each have their own kind of supply-and-demand fundamentals," said Parent.

Refinery margins were about 16 cents a litre in Toronto in January 2015, but by the end of the year they were at almost 26 cents a litre. In Vancouver, margins increased from 23 cents to 38 cents over the year, while all regions saw significantly higher peaks in the summer driving season.

The other factor keeping gas prices from following crude is increased taxes, both through green initiatives and straight revenue-boosting.

"Taxes play a much greater role than what we would normally assume," said McTeague. "They have increased pretty much right across the country since 2008, and dramatically so."

Vancouver drivers pay about 48 cents a litre in taxes, which is about 10 cents higher than early 2009 thanks in part to the 6.7-cent-per-litre carbon tax. Montreal drivers pay about the same tax and have seen a similar increase.

Toronto drivers aren't burdened with the city taxes charged in Vancouver and Montreal, but have still seen taxes go up about 8.5 cents a litre since 2009 to average 37 cents a litre, which includes a 10 cent federal tax, a 14.7 cent provincial tax, plus the HST.

-----

With files from Geordon Omand in Vancouver



Advertisements

Latest Economic News

  • North American markets advance, loonie up slightly

    Economic CTV News
    TORONTO - The Toronto stock market advanced in late-morning trading, led by health-care, utilities and energy stocks. The S&P/TSX composite index added 31.90 points at 15,327.10. In New York, the Dow Jones industrial average advanced 40.85 points to 19,655.66, while the S&P 500 gained 6.02 points at 2,252.21 and the Nasdaq composite rose 27.18 points at 5,444.53. Source
  • Sears Canada reports $120 million loss in third-quarter as revenue drops

    Economic CTV News
    TORONTO -- Sears Canada saw its third-quarter loss grow to $120.0 million from $53.2 million during the same period last year as revenue declined. The loss amounted to $1.18 per share, compared with 52 cents per share a year ago. Source
  • Coca-Cola CEO Muhtar Kent to step down next year

    Economic CTV News
    NEW YORK -- Coca-Cola said Friday that CEO Muhtar Kent will step down as CEO next year and be replaced by Chief Operating Officer James Quincey. The world's largest beverage maker is under pressure to grow as people around the world drink less soda, including its flagship Coke. Source
  • U.S. airlines may soon let you talk on your cellphone in flight

    Economic CBC News
    Airlines could let passengers make in-flight phone calls using Wi-Fi under a proposal from federal regulators. Flight attendants and others have complained that the calls could be disruptive. But the Department of Transportation said Thursday that it envisioned allowing the calls if airlines tell all customers about the policy when they buy their tickets. Source
  • Tribes suing over Dakota Access pipeline willing to put claims on hold

    Economic CTV News
    BISMARCK, N.D. -- Two Sioux tribes suing over the Dakota Access pipeline say they're willing to put their claims on hold while the Army considers whether to allow the pipeline to cross under a Missouri River reservoir in North Dakota. Source
  • Japan ratifies Pacific trade pact despite Trump plans to withdraw U.S.

    Economic CTV News
    TOKYO -- Japanese Prime Minister Shinzo Abe won parliamentary approval Friday for ratification of the Trans-Pacific Partnership, despite U.S. President-elect Donald Trump's plan to withdraw from the 12-nation trade pact. Upper house lawmakers approved the TPP on Friday, heeding Abe's calls to push ahead with it despite Trump's rejection of the free-trade initiative championed by President Barack Obama. Source
  • Asian shares stumble as European Central Bank rally fades

    Economic CTV News
    KUALA LUMPUR, Malaysia - Asian shares meandered Friday as an overnight rally in U.S. markets helped by the European Central Bank's decision to extend its bond-buying economic stimulus program faded. South Korea's benchmark slipped as lawmakers prepared to vote on whether or not to impeach President Park Geun-hye. Source
  • Global stocks extend European stimulus-inspired rally

    Economic CTV News
    KUALA LUMPUR, Malaysia -- Global stocks continued to rise Friday as investors remained buoyed by the European Central Bank's decision to extend its bond-buying economic stimulus program. South Korea's benchmark slipped as lawmakers voted to impeach President Park Geun-hye over a corruption scandal. Source
  • Sales, profit at Sears in U.S. continue to decline

    Economic CTV News
    HOFFMAN ESTATES, Ill. -- Sears, the one-time standard bearer for U.S. retail, has posted quarterly losses for more than a year now, and sales continue to slide as the company shutters poorly performing stores. The company's cash situation, which has led in the past to clashes with suppliers, is an ongoing concern. Source
  • Stock markets in New York hit new record highs

    Economic CBC News
    Major stock markets in New York closed at record highs Thursday amid a broad rally from banks, materials and technology companies. The Dow Jones industrial average advanced 65.19 points at 19,614.81, while the S&P 500 added 4.84 points at 2,246.19, both hitting all-time highs for a second day in a row. Source