Automotive

Gas price question. Any economists on this forum?

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  • May 20th, 2020 12:32 pm
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[OP]
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Jan 15, 2020
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Toronto

Gas price question. Any economists on this forum?

I noticed that price of crude oil across all sellers and stocks has dropped more than 50 percent.
Can someone tell me why its not reflected at the pump?
Shouldn't this be considered price gouging as well when selling at marked up prices like this when the product is super cheap?
36 replies
Deal Expert
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Feb 24, 2003
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Toronto
I'm no economist but the gas at the pumps would have been refined using higher-priced oil so I'm not surprised the price at the pumps hasn't dropped 50%. Still have to factor in refining and distribution costs.
Deal Addict
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Oct 16, 2007
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I'm no economist but I assume that the refiners are trying to maintain their profit margins with the reduced demand.
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Deal Guru
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Jan 9, 2011
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Vancouver
A 50% drop in the price of the raw material is not going to result in a 50% drop in the consumer price of the finished product, as the rest of the costs would be the same.

It would be like if food prices fell by half (which they often do; wholesale prices of fruits and vegetables can vary by insane amounts week to week) and you expected the price of your restaurant bill to also be cut in half. What the restaurant pays for the food is only a small part of the restaurant’s total cost.
[OP]
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Jan 15, 2020
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Toronto
Does refining really cost that much? What about the days of 40 - 60 cents a litre. Don't we still use the same technology? I don't buy it. I think they are using it as an excuse to price fix.
When the demand is low. price usually goes down hard not 10 cents like gas has gone down with no one driving these days.

OPAC cutting output and still they don't have the demand. They don't want the gas price to go down. Although its actually dirt cheap.

@Kiraly I don't eat at restaurants all that much but depends on the experience, atmosphere, space and staff. But yeah gas provides all those things at the station right? lol
Let say a price of water is 2 dollars. Would you pay me 4 dollars if I filter it though a towel and put a pinch of salt in it? Remember crude oil has other uses after gas is extracted.
Deal Fanatic
Aug 29, 2011
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Mississauga
Nymex gasoline futures for June are now pushing US$1 per US gallon, so that could explain in part the slow increase in retail gasoline prices increases around here.
Deal Fanatic
Dec 5, 2006
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Markham
The raw oil price is only part of equation. For example, labour cost, R&D cost, oil field exploration , those costs wouldn't come down, they are stable in short period time , so raw oil price is only part of it. But certainly, no real competition doesn't help either
Jr. Member
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Jul 20, 2011
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TORONTO
Weaker Canadian dollar and fixed taxes (I.e Fuel tax is cents per litre, not a % of the price). So you’re always paying same amount in taxes no matter what the gasoline cost is. Not counting HST which is on top of all this.
Sr. Member
Sep 29, 2014
713 posts
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GTA
Lots of reasons,

Lack of competition here, refining oil requires large and expensive facilities so only the big boys play,
There could be some underlying regulation keeping competitors away but IDK

The fixed costs in producing the end product, transporting a barrel of oil is not cheap, refining it is not cheap
Throw in the different taxes and you effectively have a price floor.

With WTI in the mid 20's and inventories piling up it you still end up with gas at 70-80c/Liter

On the flip side when the cost of a barrel was 2.5X the current price , prices were in the 110-120 range, about 1.4x what the current price is.


Every few years some level of government launches an inquiry into gas prices and largely finds nothing.
Member
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Mar 21, 2005
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GTA
Plus the fact that Canadians are very environmental conscious that we are not allowed to build any oil refinery. Any raw oil produced in Canada has to be shipped to US to refine and transport it back for us to consume. Hence the higher cost.
Deal Addict
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Aug 12, 2006
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smartie wrote: R&D cost, oil field exploration , those costs wouldn't come down
Those above costs should now be zero.
Deal Fanatic
Dec 5, 2006
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Markham
beachlover wrote: Those above costs should now be zero.
I don't know

Not like CEO send an email and say stop, then all cost are gone
Deal Addict
Dec 18, 2017
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London, On
They will probably pull their favourite saying "We switched to summer gas, which is more costly", which 6 months ago they said "We switched to winter gas which is more costly".
Deal Expert
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Feb 11, 2007
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Oakville
coolnut wrote: Plus the fact that Canadians are very environmental conscious that we are not allowed to build any oil refinery. Any raw oil produced in Canada has to be shipped to US to refine and transport it back for us to consume. Hence the higher cost.
That's not very eco conscious, shipping oil down there then shipping it back. Would be more eco to refine it in Alberta and keep it local.
Member
Jan 2, 2009
221 posts
17 upvotes
Pembroke
Here is my though and don't get me going about the cost of rafinery ..shipping ect. that has not change in the last 6 month at least ..it's the same.. what change is the cost of buying crude oil witch went way down .. so company used to make xxx million profit from selling fuel, now that no one used fuel. They still want their xxx million profit so they buy at low cost ..and by raising price at the pump they are not loosing has much million ..but wait as soon as everyone used fuel again. They will still raise prise ,making them even more million .is it price gauging ..yes. Will anyone do anything about it?..no because all the tax is base on the price at the pump so higher pump price is more Morey the government make cheer
Deal Fanatic
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Mar 12, 2005
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Victoria
The biggest issue is we don't need oil. Other than a little refined oil to keep our vehicles lubed, we don't use oil. We use gas.

It feels like years ago, that refining oil into gas wasn't done with solid profit margins. It was an add on to move the oil. Then all of a sudden oil companies figured out the oil is pretty useless to the average joe. They need the gas more than they need the oil. I think profit margins for refineries began to increase.

Here in BC we don't refine near enough oil into gas to support our province. We import a lot of it from Alberta and Washington state. On top of that we require a certain blend with ethanol to be environmentally friendly, which means refineries to make us a special recipe. We basically have no negotiating power because we depend on Alberta/Washington for the fuel.

Under normal circumstances gas is pretty much an inelastic good. Demand doesn't seem to want that much when the price goes up. I would imagine if it did, then they wouldn't do it. If they really want carbon tax to work it needs to bigger. It's only enough to be a nusiance. If you really wanted people to use less gas, you'd need to really increase the cost of fuel. Here in BC we have the most expensive gas, but also the highest adoption rate of electric cars.

Then again the fuel companies might make themselves obsolete if fuel prices keep going higher.
[OP]
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Jan 15, 2020
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Toronto
@zod Not true about only using to keep car lubed. I remember reading or watching a video about by products of petroleum which includes plastic on tooth brushes to many more products we use.
Too lazy to google but i think its still true

And ethanol is a poor excuse of a substitute. I tested it in my motorcycle. Ethanol = less kilometers so how much are we really saving by adding ethanol.

So we let companies rob our common resources instead of them paying us. They sell it back to us with a tax? For what putting it though a filtering system? Drilling a hole to find oil? Digging a mine to find gold? We end up using tax dollars to close those wells, mines and deal with environmental problem they leave behind.. Oh don't forget bail them out with tax dollars when they are about to go under..
Deal Guru
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Jan 9, 2011
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coolnut wrote: Plus the fact that Canadians are very environmental conscious that we are not allowed to build any oil refinery. Any raw oil produced in Canada has to be shipped to US to refine and transport it back for us to consume. Hence the higher cost.
That is absolutely false. There are operating refineries in BC, AB, SK, ON, QC, NB, NL.
Deal Addict
Jan 19, 2017
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RomeoAlphaJuliet wrote: I noticed that price of crude oil across all sellers and stocks has dropped more than 50 percent.
Can someone tell me why its not reflected at the pump?
Shouldn't this be considered price gouging as well when selling at marked up prices like this when the product is super cheap?
The retail price of gas contains very high gov’t taxes that don’t change.
Deal Expert
Jun 30, 2006
18655 posts
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Toronto
It's absolutely price gouging no doubt. The barrel is $30 but gas prices are over $0.85/Litre? I don't see the justification the gas should be $0.60/Litre.

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