Oil Companies and justifying rising Gasoline prices just Smoke and Mirrors

By Guy Cramer

May 15, 2004

With gas prices at the pump set to rise over $1.00 per liter in Canada the general public is becoming more vocal about what they perceive as a cash grab. Granted OPEC has cut back production in a time of political uncertainty in the Middle East pushing the price of crude oil to over $41 dollars per barrel, but does this increase in crude oil cost justify the price at the pump?

One year ago May 13, 2003 the price per barrel of crude oil was $28.53, as of May 13, 2004 is was at $41 per barrel which is an increase of 42.99%

One year ago May 14, 2003 the average price of gas at the pump in British Columbia was $0.70 per liter whereas yesterday the price was $0.99 which is an increase of 41.78%

So the Oil companies have kept pace with the percentage increase of crude oil, I guess we shouldn’t be upset about this, right? Wrong!

Most gas pumps have a little pie chart sticker on the pump that explains that 37% of the price of gas goes to crude oil costs, taxes make up 43%, refining and marketing costs consist of 17% and only 3% is profit for the oil company.

Again things appear to be justified, until we take a different perspective on the difference over the last year. Last year a 50-liter fill would have cost $35.09; The breakdown consists of $12.98 for the price of crude, $15.08 went to taxes, $5.96 went to refining and marketing costs and $1.05 was profit for the oil company.

As of yesterday a 50-liter fill would have cost $49.75; The breakdown consists of $18.40 for the price of crude, $21.39 went to taxes, $8.45 went to refining and marketing costs and $1.49 was profit for the oil company.

So while it costs the oil companies an extra 41% to purchase the crude oil, not only are they passing this onto the consumers but they have also passed on a 41% increase in taxes, 41% increase in refining and marketing costs and a 41% increase in profits.

If the price remained at $0.70 per liter over 12 months and you had to fill up 50 liters once every two weeks it would cost you about $877 for fuel in the year.

If the price remains at $0.99 per liter over 12 months and you had to fill up 50 liters once every two weeks it will cost you about $1243 for fuel in the year. That is an extra $366 per year.

If we subtract the cost for crude oil the increase in costs attributed above and beyond the rising crude oil prices is $230 per year. That’s 6.5 tanks of gas (just over 3 months of fills). It is not the Government that raises the prices but the oil companies and they are directly responsible for charging the standard driver $230 per year.

While the current government is unlikely to intervene on this cash cow by reducing taxes, the opposition government could gain voters in the next election by proposing a flat rate tax on gasoline and diesel prices that varies only with the cost of inflation. If implemented the remaining increases would be somewhat obvious and difficult to explain by the oil companies, thus the government could also control oil company fuel profits by using an equation not based on a percentage but on other variables.   

Our economy is directly linked to the price of gasoline and diesel, if the oil companies are costing you an extra $230 above where it should be per year what about our freight and transportation costs of trucks, busses, trains, planes and ships! Those increases in fuel costs get passed on directly to you the consumer in the products or services that we use. The oil companies are indirectly responsible for much more than $230 the customer is required to pay.

When the price of travel, groceries, consumer products… goes up due to increases in fuel surcharges, both the rich and the poor have to pay these increases and last I saw, disability insurance, welfare, pensions were not increased to cover these extra costs on society at large over the last year.

This smoke and mirrors tactic has gone on long enough and we need to look to our political leadership to control this runaway freight train.

Part 2: Evidence of Price Fixing by Oil Companies?

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