Gas is too CHEAP!

Whenever gasoline prices peak in the summer, there are lots of loud complains about the price being too high; that this is somehow evidence of a "cartel" or "collusion" amongst oil companies, rather than the simple effect of supply and demand. Of course, no one (except me) complains when the price is TOO LOW.

Therefore, I take this opportunity to state clearly that retail gasoline prices are too low right now. For the past 2 weeks or so (I keep track) I have paid about 91 cents for a litre of regular unleaded at a major brand station. Why is this too low? Consider the math:

Price of crude oil at Edmonton, first half of Oct/07: approx. 44 cents/l ($440 per m3)
Basic refining costs (estimated, based on crack spreads): 5 cents/l
Transportation costs to Calgary (estimated pipeline): 2 cents/l
Federal excise tax: 10 cents/l
Alberta tax: 9 cents/l
Subtotal: 70 cents/l
GST on this portion: 4.2 cents/l
Total raw cost: 74.2 cents/l

So more than 74 cents is taken up with the basic cost of making raw gasoline and getting it to Calgary. Of course I have missed some significant costs, such as terminalling and trucking within the city, selling and administration costs (or G&A), marketing costs, the cost of the station, including all the electrical, wages, etc. of running a station, GST on all these other costs, and last but not least - an actual profit for the refiner, as well as the retailer.

Keep your tank topped up. And remember, if there was collusion, the prices would be much, much higher right now.

Sources: AB Facts on Gasoline (tax info)
Competition Bureau (crack spreads)
Manitoba Gov't Pricing report (Crude price)
Transportation (my experience in the industry)