How Much Should Gasoline Cost At The Pump?

It varies because input costs are different and depend on where you are. This is for Ontario and for delivery points within 125 miles of a refinery. I would be happy to amend it for errors. It comes close here and now.

Here’s what I can estimate.

The crude oil cost per liter

  • Crude oil Monday the 13th is US$ 71. 00. It varies by the nature of the crude. I find West Texas Intermediate is a reasonable proxy.
  • The Canadian dollar is at 79 cents  so $89.87 per barrel Canadian
  • There are 158.9 liters per barrel. Gasoline is just one of the products taken from a barrel. Some products like plastic feedstock are worth more, others like bunker C oil less. For this calculation I have assumed that on average, if I divide the barrel price by 125, I will get something near the cost allocation to gasoline for the crude

Using these variables, the price per liter for crude oil is just under 72 cents. 71.9 cents per liter

Transportation to the refinery.

If overland and we assume a pipeline then $5.00 per liter. If any other way, at least three times more.

So $5 divided by 125 = 4 cents per liter

Refining Cost

$4.00 per barrel for 125 liters of gas =  3.2 cents per liter

Transportation to dealer

This depends on how far from the refinery the dealer is. I have assumed 40,000 liters per tanker, $900 to load and unload and $3.00 per mile. Based on 125 miles from the refinery, the cost is 3.19 cents per liter. This could vary depending on the size of the tanker and the estimate for loading and unloading

Dealer margin

The range here is quite large. Large urban centers will tend to be higher than others because of their overhead.

I have used 2 cents per liter and it could be quite different from place to place.

Oil Company profit half a cent per liter. I have no idea but I need a line for it.

Direct Taxes

In Ontario, the road tax is 14.7 cents per liter of unleaded gasoline

The federal gasoline excise tax is 10 cents per liter. Diesel is 4 cents

The federal carbon tax is 8.84 cents per liter

Direct taxes are 33.54  cents per liter

Indirect costs

Credit card and debit card charges depend on the processor charge and the percentage of purchase using cards. I have guessed 0.75% of the ticket

HST is 13% of the final price.

What should a liter sell for.

Direct costs total $1.1869

HST plus processing costs total 13.75 % of the selling price, so the selling price will be $1.1869 divided by .8625 (1-.13-.0.75) which equals $1.376 per liter at the pump. The HST component will be 17.8 cents

Checking my work.

I find Dan McTeague’s Gas Buddy to be a useful tool. In my area the price of gas ranges between $1.339 and $1.389. The $1.376 seems reasonable. High test should be more but the only variable that changes when I go there is refining cost. I don’t know how they do it so I can’t estimate what’s reasonable there.

On the reserves, the price is around $1.18. Take out some of the direct taxes and increase the dealer margin is my first guess for the reason. I have not checked.

The takeaway

The government gets most of the money. 17.8 cents of HST and 33.54 cents of direct taxes for a total of 51.34 Cents per liter.

I don’t know how much the royalties are on the crude, but they are not zero, so they get more there. The Alberta site is opaque about this, but 25% of the WTI price seems reasonable That would be around 18 cents per liter. That is for oil sands production. I don’t know what it is for conventional production.

Let call it 70 cents to the governments. Roughly half.

I don’t drive a lot but it still adds up to about $1,000 per year. If I were someone who had to drive for work, like a contractor, I might be completely depressed. I could take public transit, but if  a contractor needs to pick up some lumber, and a bag of cement or a box of tiles, they don’t have that choice. Given poorer gas mileage and more miles, I suppose $400 a month would not be out of the question for this person. $5,000 per year. For commuters it could be huge too.

When you decide the oil companies are greedy profiteers, and maybe they are, you should build your case with specifics. When you do, you will see who the real profiteers are.

Look up inelastic demand in economics and you will see why it works like this. There is no substitute for gas yet so people will pay what is presented as the price.

I wonder how they will tax electric cars and trucks. When their greatest wish is to have all-electric vehicles is achieved, they will lose a lot of revenue when the gas taxes go away. I wonder what they will do. Some other hidden tax I suppose.

 


I help people have more retirement income and larger, more liquid estates.

Call in Canada 705-927-4770, or email don@moneyfyi.com 

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