Political operatives and poorly informed, lazy, or malicious journalists are again making fools of us all in respect to gasoline prices.
The story is essentially this, “Oil prices have fallen by 50% gasoline has fallen by 25%. Oil companies are thieves or worse.”
An easy story to accept because I would like lower gas prices. It is always pleasant to find someone to blame.
Sadly there is more information required before making the judgement. In general, gasoline prices include a great many things that are not oil prices and those have not fallen at all. For example:
- The cost to transport oil from the well to the refinery remains the same
- The cost to refine remains the same
- The cost to transport the refined product to your local service station remains the same
- The fixed rate federal and provincial gasoline taxes (24 cents in Ontario) remain the same
- The dealer margin per liter remains the same
- Credit card costs are down slightly because the price is lower
- The Harmonized Sales Tax is down slightly because the price is lower
If oil fell to $0.00 per barrel, gasoline would still run about 50 cents per liter at the pump.
Think about another situation. If the price of beef falls by half, would you expect the price of a steak dinner at a fine restaurant to fall by half. Of course you wouldn’t.
Pay less attention to the noisy ones. They are just trying to get attention. If you want to see if they know anything, ask how many liters of gasoline come out of a barrel of crude oil. Or even how many liters of crude oil are in a barrel.
In my experience, none know. If a story is not fact based, why pay attention?
Don Shaughnessy is a retired partner in an international public accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario. Contact: email@example.com