Gas Gouging? Not Quite...

The notoriously socialist Canadian Center for Policy Alternatives has launched a web site to show us how the greedy oil companies are robing us blind.

Because you know it's always Big Oil that's the cause of all our ills. It's never government taxes on gasoline or the Opec Oil Cartel - that's just crazy capitalist talk.
“With today’s crude oil price of $61.80 USD per barrel and the U.S. dollar at $1.11 CAD, the price of regular unleaded gasoline in Ottawa should be 87.7 cents per litre at normal profit margins,” the site explains. “At a price of $1.02 per litre, you are paying 14.3 cents per litre in pure excess profit. Across Canada, an extra margin of 14.3 cents per litre generates an additional profit of 14.3 million dollars per day.”
Let's check that math again.

The price of crude oil is $62/barrel. Dividing that by 160 Litres/barrel gives us 39 cents/Litre for pure crude oil.

At $1.11 CAD per USD that gives us a price per litre for crude oil of 43 cents/Litre. Gas taxes run you at about 46.7 cents/Litre extra if you live in Ontario.

That runs you at a grand total of 89.7 cents/Litre. Slightly higher than the this guys numbers, but he can be forgiven for exaggerating his point.

Unfortunately though his numbers are severely off. You can't take crude oil and pump it into your car and expect it to work. You need to refine it first. That introduces more costs that this guy is cleverly overlooking.

The US government estimates that 19 % of gasoline costs come from refining. If we are conservative and assume that increases our price by 15% it makes our grand total a stinking 103.2 cents/Litre. That isn't including the cost of freight which we can neglect for a city close to a refinery but include for a city farther away from one.

As of right now the price of gas in Toronto runs at 102.8 cents/Litre.

Now obviously my numbers are rough, but I think it's apparent that whatever the profit margin companies make on gasoline is small pickings. Quite frankly this guy is not telling the whole truth - which for some people is LYING.

I should make this disclaimer right about now: I worked for 4 whole months at Imperial Oil. So I guess I'm a corrupted greedy oil sympathizer myself. Besides working for a whole 4 months for an oil company I haven't got paid one red cent by big oil to write this blog post so remove your blinders and calm down a minute.

Oil companies make a ton of money but it's not at what people think. They make it on the gimmicks. They make it, based on what I was told while working for that greedy oil company, on stuff like guys buying the chocolate bar when he's filling up. Or they make it when he stops to get some coffee. That's why many oil companies have pushed to get Timmie's installed right on their location and they've been pushing more and more the convenience store model of a gas station. The margin on a cup of coffee or a chocolate bar is a lot more appealing than the small sum they get from gasoline.

The strategy summed up in a few words: bring 'em in for the gas, make money on the gimmicks.

Decades ago the gimmick was oil changes. So Imperial Oil went ahead and bought an Oil change company to integrate Oil change locations at every Esso Station. They eventually gave up the idea but you can see that this follows a pattern of behavior.

But to top it all off while I was working for that greedy oil company I was made privy to another important piece of information: people don't care about gas prices.

It's true. They've done studies. People holler and complain - that's no surprise. But when it comes choosing to go to one gas station over another they will make their choice based more on gas station lighting (especially women), and accessibility. Price factors low on how people make their choices at the end of the day.

So why all the hate against oil companies then? My guess is that it's an easy target for people to blame stuff on.

So complain all you want to. My suggestion is buy a Honda Civic and move on. You aren't getting gouged. If you're driving a gas gussling SUV, a school bus of a van, or Hummer and you're complaining about gas prices you can go suck a lemon.

1 comment:

  1. Not that I don't agree with your post, but what if you have to drive a school bus of a van because strapping your many children to the outside of the vehicle might violate safety laws? Should these people "suck it up" too? They're likely the ones who more desperately need to save the money but don't have a choice . . .