The oil industry in Canada is second to none, at least when it comes to spin. It makes the most creative of Canada’s political leaders look like amateurs.
The latest and most audacious story being spun to Canadians is that the oil industry stands to be hurt by high oil prices; that it finds itself in as tough a spot as Canadians as prices escalate. That’s what we started to hear, not when retail gasoline prices were running up to record levels over the past two weeks, but when prices kept going up at the same time as the price of crude oil was going down.
And now that prices have eased by about six cents a litre in much of Canada, we’re supposed to be feeling better.
Before we get out our crying towels in sympathy with the poor helpless corporate giants that dominate the home heating oil and gasoline markets in Canada, a bit of a reality check is in order.
At the price of $1.34 a litre being reported in the media in Toronto today, the industry is making an excess profit of 25 cents per litre, based on normal production costs, today’s crude oil price, today’s exchange rates, and taking into account all taxes.
That compares with an excess profit of 20 cents per litre two weeks ago.
These figures are calculated using the CCPA’s gas gouge meter (www.gasgouge.ca) incorporating current crude oil prices and exchange rates.
The attached table summarizes the results of these calculations in major urban areas across Canada, comparing the figures for April 29 with today’s numbers. Although the average price in these major centres across Canada is roughly the same today as it was two weeks ago – $1.33 on April 29; $1.35 today – the industry’s failure to pass on the savings resulting from crude oil price changes and exchange rate moves is reflected in the fact that the average excess profit has jumped from 14 cents per litre on April 29 to 25 cents per litre on May 12.[1]
The biggest gaps – in the 30 cent per litre range – are in Montreal and in western Canada; the smallest gaps – in the 15-20 cent range – are in Ottawa and in BC outside the lower mainland.
To put these numbers in perspective, one cent per litre across Canada generates excess profits at a rate of $1 million per day. So an excess profit of 25 cents per litre is generating $25 million in excess profit every day – $9.125 billion a year.
In its rationalization of these price increases, the industry majors are fond of stressing the financial squeeze faced by gasoline retailers. True enough. But what they don’t say is that it is the industry majors themselves who are doing the squeezing, and increasingly having trouble carrying the proceeds to the bank.
Canada’s petroleum industry wins the prize for creative spin. One day, the problem is war in Libya; the next day it is floods in the southern United States. One day, the price is set in New York and out of our control; the next day prices are up because of a fire in a refinery in Canada. One day the problem is speculators in New York; the next day futures markets play an essential role in stabilizing prices.
The common thread? Every day, 365 days a year, one cent of price gouging generates excess profit of $1 million.
Hugh Mackenzie is a Research Associate with the CCPA.
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[1] The price for Toronto is the $1.34 figure referred to for Toronto prices in media stories today. Prices for other major centres in Canada were representative current prices charged by major retailers obtained as of noon on Thursday May 12 from each centre’s respective gasprices.com web site.