Carpooling with Benny and Julia
Fridges, dryers and cars. What do these things have in common?

Strong Loonie helping you at the pump?

While you may have been thinking that gas prices were high enough this summer, did you ever wonder if the strong Canadian dollar was helping or hurting you at the pump?  The Federal Government did, and the results are quite interesting.

Loonie_bgilliard_2Natural Resources Canada looked at gas prices in June of this year, which averaged about 106.6 cents per litre according to www.mjervin.com.   They found that if the Canadian dollar had not jumped in value, "gasoline prices could have been as much as 14 cents per litre higher in June 2007."

That might have meant an average price of 120.6 cents per litre, or at least $7 more for a 50 litre fill-up.

Why is that?  Well, because crude oil is purchased in U.S. dollars, "Canadian refiners have benefited from the increased buying power resulting from the strong Canadian dollar relative to its U.S. counterpart."

Now you may have read that and assumed refiners reaped most of the rewards.  Not so. 

"...due to competition in the North American gasoline market, Canadian gasoline consumers, and not the refiners, have benefited from the lower wholesale gasoline prices resulting from the stronger Canadian dollar."

There are positives and negatives to a strong Canadian dollar, but this study sheds a light on some little known good news for consumers. 

If you want further information on how wholesale prices impact the price at the pump, read Gas Prices are like a three layer sandwich.

Photo credit: bgilliard

Comments

Feed You can follow this conversation by subscribing to the comment feed for this post.

George R. Pilbeam

Just another public relations blog to try and confuse the consumers. The oil companies with their abscene profits and exec. salaries don't mined spending a little money on a web site to bamboozle the consumer.

It would be great if the oil companies execs were forced to read their own publicity blogs, every day before starting to work.

miro

I appreciate what you are trying to accomplish with this site trying to help us understand.

There is a great believability gap between what the industry says, what we feel and see, how the market values the industry's efforts and of course the profit generated all along the way.

Key Problems:
1. Petroleum does not operate in a free market system. OPEC has a great deal of influence.
2. The production chain's 'efficiency'/inability to respond/adapt to changing supply/demand considerations doesn't penalize business (other than forgone profit) because the price just goes up to compensate for the supply issues.
(explain to me the competitive business sense when Sunoco? had their (Ontario) refinery fire earlier this summer - triggering a local and expanding gasoline shortage that saw everyone's price go up - even when they had the capacity.

Its cases like this which scare me because the inelastic demand dictates the enterprise should do everything in its power (by action or inaction) to affect supply. Ie don't build more capacity, do build up inventories too high.

3. Free market pricing responds to rumors and sentiment and there is a prevailing parachute pricing behavior at retail.

So let me restate this in another way:
When prices go up somewhere- you point to it and say - its because of some geopolitical or climatological disturbance that has an immediate impact at the pump - because of a cost of replacing inventory rationale. Ok, I buy that. But then why doesn’t the price come down as fast and as dramatically? Why is it that international events have impact on domestic supply that has always been earmarked for domestic supply?

The biggest challenge the sector faces is credible pricing - simple.
Something that shows a reasonable correlation to supply and demand going up and down the curve. But that is impossible because OPEC plays with the supply curve and others play with the perceived supply and demand curves.

How about having the industry lobby the federal government and charge the tax laws to permit gas pricing to reflect YOUR PRICE to us. That would be a huge start to allow what’s left of the market system to monitor and bring to public attention any local 'inefficiencies'

Otherwise please tell me why what you or we say, read or rant has anything consequence in our lives other than getting us to begin changing our consumption behavior - knowing that you will be there right alongside charging us whatever the higher price premium is prevailing at the time.

PS. I thought that with the growing influence of Social Media there might be an opportunity to evaluate the market's impact of these 'avoid company x for a day' emails. Perhaps one day we can see.

Rudra

This is all speculation and misinformation by profiting people fueled by multiple media spokesman just restating what other media. Assuming prices are related to availability/consumption then the gas prices should in relative percentage terms be equal to the shortage of global petroleum. In spite of all the growth in the Far East it is very difficult to believe that the consumption of petroleum has gone up by 25% to 30% globally in the past year which is the increase in prices.

Jon Hamilton

To George R. Pilbeam.

Thanks for your comment. I suppose coming from Corporate Communications anything we say could be labelled as PR.

We're just trying to present information in a more user-friendly format. The answers are all backed up by research and facts which we link to or quote from.

As for the execs, many check this blog regularly. We also hope to bring them aboard by doing 5 question type interviews. We may even ask people to send questions in advance.

Jon Hamilton

Miro.

Thanks for your detailed and well thought out comment. Let me try to address some of what you say. The rest may be better suited to future posts.

I understand the credibility gap. I just have to visit my family to know that I still haven't gotten through to them. This blog is born from a belief that we have to keep trying new ways to respond to questions. Because there are answers.

Point 1: There are factors, like the impact of OPEC, that do have an impact on the markets, but they are open and competitive for the most part. Those who buy and sell commodities like oil and refined products look at supply and demand factors across huge tracts of geography. This makes it too big for any one force to exert control.

Point 2 - Clarification, it was the Imperial refinery in Nanticoke and not the Sunoco refinery. I talked to the media daily and the price was relatively stable during that period. I'll double check my numbers, but prices really didn't go up until later in the supply situation and largely due to factors beyond Ontario.

As for investing in our refineries, we're doing that. The focus over the last few years has been reducing sulphur in gasoline. Billions have been spent by the industry. At the same time, while there are fewer refineries than in the past, the amount of product available has not decreased. Demand however, keeps going up here at home and around the world. While investing in refineries will continue where it makes financial sense, we should also be looking at ways to use the products more efficiently.

Point 3 - quick up and slow down at the pump. This requires more so I'll post on it in the future. The quick point is that prices do quickly respond to changes in the markets and that's why gas prices are lower thanks to the strong Canadian dollar while other consumer products have not yet followed suit.

I thank you for your comment and will go back to see what other information I can provide. I hope to shed light on some of the things that people assume are improper. As a media junky, I enjoy knowing why. Even if I don't agree with the answer.

As for the boycott emails, I was going to wait until they start popping up again in the spring but may get into it sooner. Snopes does a good piece on those boycott emails.

Cheers

Jon

miro Slodki

Jon

Yes Nanticoke - and the prices started going up into the second/third week of the event.

Regular unleaded Sept 26
Montreal @ $.98/l
Toronto @ $.94/l
Calgary @ $1.01/l
source: http://www.bakersfieldgasprices.com/retail_price_chart.aspx

Taxes per litre
Montreal:$.252+13.5%=.252+.132=.384
Toronto:$.247 + 6% = .247+.056=.303
Calgary: $.190 + 6% = .190+.061=.251

Pre tax Price/litre
Montreal:$0.596/l
Toronto: $0.637/l
Calgary: $0.759/l

I think that when places like the gas tracking service can provide 2 additional pieces of data (ie ex tax price) and ex tax price indexed to sweet crude - people will come to monitor, understand trends and retail pricing will stabilize.

Gasoline, Alcohol and Tobacco are the only categories that I am aware of which retail at a tax-in price.

What efforts (if any) has the industry taken to change this - pesuming you want to do so.

Still leaves the question as to how/why the industry profits reach record levels and yet everyone says there is no smoking gun.
(I'll believe that after they explain Kennedy to me ;-^))

Lee Raymond CEO of Exxon left with a $400Million retirement package.
They could afford to give it because Exxon made $36 Billion in Profit - that's the equivalent of 720,000 lbs of $100 bills - or a single stack piled 34.09 miles high!!!!
Granted not all of it was from retail gas- but the profit structure has been turned around so that we don't have a chance to question or monitor the refinery margins. This retail stuff is annoying and keeps our attention on the smaller part of the equation. The bigger profits are upstream and at the wellhead.

Let me repeat and close by saying once again - no one begrudges a reasonable profit - its when it is taken to excess that the market (or government)needs to intervene. So perhaps in future we might see a US led lobby to have profit clawbacks beyond some reasonable+1 level for energy companies and alternative fuels/energy will do its part. But I really get the sence that no one in big oil is really concerned about retail prices - as folks are in other retail sectors - because for you guys it is simply passed along to us - and therein lies the crux of the matter.

Looking forward to your conversation
BTW I dont see any permalinks or trackbacks is that functionality being added to the site?

Jon Hamilton

Miro

I like the Bakersfield website. I want to see where they get some of the retail pricing data, but it gives a nice quick historical overview of crude prices and pump prices. It would be nice to also show commodity prices for gasoline as that would provide a more complete story. Crude oil is a big component, but gasoline prices are set on the same market.

Your viewpoint on gas taxes is interesting. There is nothing that I know of that forces us to post the "all taxes included" price. It started years ago when taxes on gasoline were relatively minor, and has never changed. At one point we did talk about what would happen if we posted prices pre-tax. The consensus was it would just annoy consumers who were used to seeing the full price. The mental math at the pump would only lead to further frustration.

Instead, we've tried to help consumers understand the level of tax they pay - the pie-charts on the pump, website, etc. If you live in the Greater Toronto Area or Vancouver, you can find out the exact pump price at most Petro-Canada locations with a complete breakdown of taxes.

On Refinery margins, they are certainly better than they have been in the past. Before the last few years, most refineries saw single digit returns on investment. And running and maintaining a refinery is incredibly expensive. Much of the money we make gets invested back into the business to increase output and improve environmental performance. We've invested over a billion dollars over the last 10 years at our Montreal Refinery alone on environmental and efficency measures.

Last, we do care about the final retail price, but a lot of it is beyond our control. That's not a cop-out, it's just reality. We work hard to control costs and offer the best value. But as we know, best value is a subjective term.

I'll look into why the permalinks and trackbacks aren't working.

Pleasure talking with you.

miro Slodki

Jon, did you get my friday reply to your your last (thursday) post
Miro

Jon Hamilton

I did get it. Looks like the trackback is working. Sorry I haven't had a chance to give it the response it deserves. I'm running around with the kids this morning and hope to get back on later today.

Jon

The comments to this entry are closed.