Pump Shock

Here's the real reason why gas prices are going through the roof

On my way into work last week, I passed a Petro-Canada station that I use as my gauge for the price of gas. It was sitting at roughly $1.17 a litre, which was outrageous.

On my way home about 10 hours later (OK, maybe seven hours ... five and a half, tops ... it could have been four), the price was $1.28. A dollar twenty eight? If $1.17 was outrageous, then $1.28 would be, what, ubber-outrageous? Megaoutrageous?

After making a number of detours on the way home to find gas at a lower price (passing by one station at $1.16, expecting I would find another at the ‘lower’ price, and failing), I arrived home in a foul mood. What could have caused such a spike in gasoline prices? Was there a colossal refinery explosion in Strathcona county? Did OPEC shut off the taps? Was the NDP actually in power, and they immediately added 10 cents a litre in tax?

It was none of the above. Turns out, the reason gasoline prices rose 10 cents a litre in one day was quite complex. There are international pressures, you see, and price spreads, and shortages and market forces, and ... well a bunch of stuff we mere mortals cannot understand. 

Big Oil runs the show. A handful of oil giants have total control of a product that we depend upon to keep our society from grinding to a complete halt. Big Oil is the 800-pound gorilla in a room full of spider monkeys. Gasoline prices have been rising steadily for several weeks, but it has usually been in relatively modest increments. You know the drill; a cent or two here, then down a cent, then up two. It’s like putting on weight. One day, you’re at a trim 175 lbs. Next thing you know, you’re tipping the Toledos at 195, and wondering how the hell that happened.

But last week’s astronomical, one-day leap was something different. Big Oil threw out the gradual screwing we’ve become accustomed to for a ‘let’s just get this over with’ attitude. No foreplay, just straight to the screwing.

So, what is the official reason why we’re experiencing record high gasoline prices? Depends on what day it is.

For years, the standard excuse offered by Big Oil was that the price at the pumps reflected the price of a barrel of oil. For several weeks, that price was rising dramatically, peaking at about $115 a barrel. Ergo, the price at the pumps  went up. But wait — the price per barrel has fallen of late, down to $98 or so, and yet the price at the pump is soaring. Putting the lie to this little Big Oil story is the fact that we’re paying more for gas now than in 2008, when the price of oil hit $150 a barrel. So, why is gas going up while oil is going down?

Well, Big Oil explains patiently, it always takes some time for the lower price of a barrel to be reflected in lower costs at the pumps. But as we’ve all seen, gas prices skyrocket, but tend to fall as slowly as a leaking helium balloon.

So, if it’s not the international price of a barrel of oil, than what is it?

The latest reason offered up by the Big Oil spin doctors is something called the “crack spread” (insert pornographic joke here).

Until now, I thought a crack spread was what you see when a fat guy wearing sagging jeans bends over. But no, it’s a term that the Big Oil companies use to describe the difference between the cost of the raw material (oil) and what’s refined from it (gas).

Apparently, the poor Big Oil companies have had a pretty lousy crack spread in recent years. But not anymore. Now, the crack spread is 30 cents a litre from Edmonton refineries, up from the usual 20 or so.

In other words, they’re making more money because they’re charging more for the gas. In the world of Big Oil, crack spread is apparently a more appealing term than price gouging.

Another favourite excuse from Big Oil is that the price of gas reflects the local marketplace. It’s a competitive world, they say, and the prices merely reflect the marketplace. This could be true, of course, if there were 20 or 30 oil companies, rather than a handful of giants who set the price. Big Oil pretending that there is real competition in the oil industry is like the National Football League saying it’s not in a monopoly position because the Canadian Football League provides competition.

No amount of explaining by Big Oil can cover up the fact that they are making out like bandits at our expense. Exxon, the world’ biggest publically-traded oil company, struggled in the last quarter with profits that rose a mere 69 per cent. Imperial Oil — a.k.a. Esso — enjoyed profits that rose by 64 per cent. Poor babies. How do they manage?

The Stephen Harper government has promised to call the heads of Big Oil in for a very serious chat. All the usual excuses will be offered up, after which the government will say ‘Hey, waddaya gonna do?’ and walk away.

So, ultimately, what is the real reason the oil giants have raised their prices to record highs? It’s the same reason dogs lick their balls.

Because they can.


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