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My take: Gasoline pricing – Does Anyone Understand It?

My take: Gasoline pricing – Does Anyone Understand It?

Trying to understand the rapid escalation of the pump price of gasoline lately is almost impossible. It is like watching the ‘smoke and mirrors’ of a magician’s act. The common reasons given are that it is all about supply and demand, the war in Ukraine or the aftereffects of the pandemic. It seems like no time at all since we thought $1.75 per litre was exorbitant and now look at what is being thrust upon us.

This morning regular gasoline cost $2.089 per litre at a local gas station, which is about $0.30 more than it was less than a month ago. This is about a 17% increase to purchase the same gasoline when the world situation has shown little if any change one way or the other. The big questions are:

 How can this be realistically justified?

 Who makes the decisions to do this?

Where does all of this extra windfall profit go?

By the way, since Ontario alone sells about 40 million litres of gasoline per day, this $0.30 increase per litre brings in around 12 million dollars a day of extra revenue just in this province. This means our governments are also raking in a significant percentage of that money.

Cost analysis of gasoline pricing shows a complex mix of factors that influence it. There is the cost of crude oil, which contributes about half of the final price, along with refining costs, distribution costs, currency exchange rates and taxation that are all in play. Add the fact that crude and gasoline are traded on the commodity markets which brings the ‘Wall Street’ influence into the process. Then when you add in this nebulous ‘supply and demand’ argument it brings you to the illusionary ‘smoke and mirrors’ analogy.

One thing for certain is that our governments are the recipient of a significant percentage of the price we pay although they contribute nothing to the supply process. For example, in Ontario we pay $0.10 per litre as a federal excise tax, plus $0.147 per litre as a provincial excise tax, plus $0.11 per litre for the federal carbon tax and then add 13 % HST of the final selling price at the pump, which is taxation on top of a tax. As a general rule about 30 to 35% of the price at the pump goes to our governments.

The irony in all of this is that our governments are bent on switching our use of gasoline fueled vehicles to electric vehicles which they currently subsidize to supposedly combat ‘climate change.’ This would potentially eliminate one of their major sources of revenue. Should we ever actually get to this hypothetical point you can bet that they won’t give up those billions of dollars of revenue and the public eventually will still pay one way or the other.  There is no ‘free lunch’ with this strategy.

Simple logic dictates that if the cost of producing a product increases the selling price also increases and if the cost of producing a product goes down the selling price goes down due to competition in the marketplace.  However, with gasoline pricing this does not seem to be the case. It appears that we are at the mercy of a system that for whatever reason allows huge profits to some at the expense of the ordinary people who will have to rely on affordable access to gasoline for many years to come. No matter what the environmental activists and politicians say, ‘this ain’t going to change any time soon’.

By Roy Merkley

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