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Prices are down, but we’re still overpaying for gas

Having been gouged by gasoline pushing $1.50 a litre, many of us are a bit more complacent with the recent ups-and-downs at the pump given that prices are still below a buck. Cheaper is better as we get set to hit the road – for destinations near or far – over the holidays.

Still, prices could be lower. And should be, according to a research note released this week by BMO senior economist Benjamin Reitzes. Based on the price of oil, gasoline should be less than 90 cents a litre, perhaps closer to 80.

While oil prices are dropping, we haven’t seen corresponding numbers at the pump, he argues.

As is often the case, things are different in the U.S. The price has fallen through the $2/gallon level in parts of the U.S. Even with a 30 per cent premium for the weaker loonie, that’s less than 70 cents a litre. Canadians get hit with higher taxes, of course – in Ontario at a buck a litre, about 35 cents goes to various federal and provincial taxes, some of which makes its way to municipal coffers, there to be wasted as we’ve seen in this neck of the woods.

Speaking of government coffers, they have taken a hit with the lower oil prices, largely due to shutdowns in Alberta, where the tarsands aren’t viable at today’s lower oil prices. Nobody’s feeling sorry for the oil producers, but there are real effects on laid-off workers, as well as ripples through the economy – a reminder of why it was a bad idea for the previous government to put too many eggs in one basket.

On the upside, the industry’s loss is a gain for most of us, in the form of lower direct costs for fuel, but also for indirectly lower prices due to falling transportation costs.

Therein, of course, lies a longstanding issue in discussions about how we’ve routinely been pumped by the oil industry. The grief extends beyond those of us with cars – those heating their homes with oil have been experiencing price shocks in the vein of those suffered by electricity customers, though the Wynne government has proven to be much more corrupt and harmful to Ontarians than the oil conglomerates, a hardly comforting reality.

But more than that, we all suffer when the price of gasoline skyrockets: virtually all of the goods we purchase rely on fuel-powered transportation, at the very least, to get them to the stores.

Ultimately, the cost of gas has everything to do with the price of bread when you go shopping. And that is just the tip of the proverbial iceberg. Increased fuel costs have a ripple effect through the economy, touching us in a variety of ways.

While oil companies argue the ups and downs (mostly ups these days) of gasoline prices are purely market driven, they offer little evidence. Hikes are, in essence, supposed to be revenue neutral. But experience has shown that rising prices correspond to increased profits for the country’s four largest gasoline companies,

Petro-Canada, Esso, Sunoco and Shell.

When gasoline prices go up, oil companies blame a host of reasons, some of them clear and others highly dubious, but always maintain that their margins are slim. They never reveal the extra profits tied to price hikes.

At the beginning of the manufacturing chain, the price of crude oil – those daily reports of fluctuations the world market, measured in U.S. dollars per barrel – does matter. Most of the crude oil destined for our gas tanks costs no more to produce  today than it did when gasoline was 30, 40, 50 cents a litre cheaper. You don’t have to do much math to see how that translates into fat profits.

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