Gas prices are determined by supply and demand.

Gas prices are determined by supply and demand.

Gas prices stubbornly high despite oil’s dive

Reasons why the price at the pump is higher in British Columbia

U.S. refineries, low loonie add to pump pain

Jeff Nagel/Black Press

 

Gas prices remain stubbornly high in B.C. despite the slide in crude oil prices, and motorists are feeling gouged.

Gasoline is down only slightly from $1.40 a litre a year ago, while crude has plunged more than 50 per cent from around $98 a barrel to less than $44 in early August.

But petroleum industry analysts say it all boils down to supply and demand. Crude oil accounts for less than half of the end cost of a litre of gasoline, with government taxes and refining charges the other big factors.

“I wish there was a simple explanation,” said Jason Parent of the Kent Marketing Group. “There isn’t much of a relationship on a day-to-day basis between crude oil and retail gasoline.”

Expecting gas to move in lockstep with crude oil is somewhat akin to expecting house prices to follow lumber prices, without recognizing scarce land or an influx of buyers might have an influence.

Parent said crude and gas prices can go in different directions for different reasons, and gas prices in B.C. can diverge from what other Canadians pay.

Most of the difference between B.C. prices and the rest of the country is explained by the higher 17-cent-a-litre TransLink tax in Metro Vancouver as well as B.C.’s carbon tax.

Motorists are paying just over $1 in Alberta, a few cents more in Saskatchewan and Manitoba, and $1.10 to $1.20 in most of Eastern Canada.

But even after taxes are factored out, Vancouver prices are 5 to 15 cents a litre higher than most other cities across Canada.

The reason, Parent said, is that Vancouver-area prices follow those along the U.S. west coast, where the wholesale gas supply has been constricted by refinery problems in California, driving prices up.

“Wholesale prices have been high there relative to the rest of the U.S. for a month now,” Parent said.

Some gasoline comes to B.C. through the Kinder Morgan pipeline, but the rest comes from Washington State or other U.S. refineries.

If prices were sharply higher in Vancouver than cities to the south, Parent said, gas would flow back to the U.S. – resulting in shortages here – or wouldn’t be shipped north in the first place.

Another “huge” factor behind why Canadians in general aren’t yet seeing much relief at the pumps is the drop in the loonie over the past year.

Crude and wholesale gas are priced in U.S. dollars, so Canadians are paying with a devalued currency that simply doesn’t go as far as it did a year ago.

So who is profiting from the persistently high pump prices?

“Right now, refiners are the big winners,” Parent said.

They’re running close to capacity, demand is up because of lower gas prices and therefore refiners can charge more than usual.

If crude oil prices get even cheaper – potentially as sanctions against Iran end and more oil pours onto the world market – there’s no guarantee gas prices will follow because of the refining constraints in North America.

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