# Basis for Gasoline prices



## peterboro31 (May 11, 2010)

Does anyone know how the, at the pump, gasoline price is arrived at? It sure as heck is not based on the rise and fall of crude oil.

Any opinions or facts would be appreciated.


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## Sustainable PF (Nov 5, 2010)

A bunch of rich white guys in North America talk to a but of rich Arab and Russian guys aboard and they set the market.

My absolutely uneducated gut feel guess.


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## sags (May 15, 2010)

Come on people.................

Gas prices just "happen" to coincide with long weekends and paydays.......


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## LBCfan (Jan 13, 2011)

As much as they think you will pay.


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## carverman (Nov 8, 2010)

peterboro31 said:


> Does anyone know how the, at the pump, gasoline price is arrived at? It sure as heck is not based on the rise and fall of crude oil.
> 
> Any opinions or facts would be appreciated.


in Canada, apparently, gas prices are influence by "reduced refinery capacity", growing seasonal demand, and "lack of competition". 
Have you ever noticed that gas stations all change their prices at the same time? Obviously collusion and maybe a secret decision amongst themselves,
not to compete with each other. 

Here's more..check out the gas "prices" on signs in the pictures..
http://mississauga-gasoline-prices.mississauga4sale.com/


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## Rico (Jan 27, 2011)

When I was in my late teen years (circa 1990), my friend's dad ran a gas station. My friend forgot to change the sign one night and had a 2 cent difference from other stations (it was a small independent station). The next morning, the owner of a local Esso phoned and asked if he was trying to start a gas war. He basically told him if he didn't change his sign to X price immediately, the Esso would lower their price so low that nobody would come to my friend's Dad's station and they'd be out of business in no time.

My friend changed the sign right away but he never forgot that phone call.


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## carverman (Nov 8, 2010)

Rico said:


> owner of a local Esso phoned and asked if he was trying to start a gas war. He basically told him if he didn't change his sign to X price immediately, the Esso would lower their price so low that nobody would come to my friend's Dad's station and they'd be out of business in no time.


Mafia style tactics? In Ontario, there are only less than a half dozen 
refineries..most centered around metro areas like the GTA, and close to
the trans canada pipeline. So in most cases, the gas stations get their
product from 4 specific refineries, two owned by Imperial Esso,
one each by Suncor and Shell.

from online sources:
Ontario's basic problem is a lack of refining capacity, partly a result of the closing of an obsolete Petro-Canada refinery west of Toronto in 2005, she said.
There have been other recent "glitches", however.
<end>

Picture a place in space and time, where the big oil realizes the lack
of refining capacity to satisfy demand, but because of huge cost of
modernization or even building a new refinery to satisfy demand..
says to itself..."Hell!.. why invest in new capacity to satisfy demand?..
*that could lower prices!*. Do we want to lower prices? No! 

We want to continue raising prices, blame it on world oil prices..<CHUCKLE>
and make obscene profits off the backs of the poor working stiffs, who have no choice when buying gasoline or diesel.

Now, lets just send our "goons" out the individual gas stations and "convince"
them NOT to compete with each other..if they want to stay in business...
that is. 

If they don't comply..we will cut them off from our delivery schedule, they
will run out of gas and then..either go out of business..or come around to
bow to our demands."
.......................................................

Mr McGinty, premier of Ontario: " Do what you need to do "Big Oil", the
HST and the provincial excise tax will bring in billions of extra revenue,
tax dollars from the working stiffs, to pay down the Ontario deficit..so you have "carte blanche" to do as you please...oh by the way..here's a tax reduction "bone" for your efforts..and try not too squeeze them to hard
,chuckle> when you have your hands where... they don't belong!" 

"We win, you win...and the Ontario drivers will just have to suck it in"


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## carverman (Nov 8, 2010)

Overheard on the local radio this morning... Mr. McGinty, Premier of Ontario,
when approached on lowering gasoline taxes on the skyrocketing cost of gasoline was overheard to say...
"Well what's the point of us lowering taxes on gasoline?...Big Oil will just raise the prices to make up for any tax reduction we provide to the consumer."

*FLY ON THE WALL, in a corporate boardroom of BIG OIL in Houston.*
Sam Houston:
CEO of "Big Oil"...puffing on a big cigar, renumeration: $2.8 million in salary,
$1.3 million in bonuses, ( IF he continues to make "Big Oil" very profitable),
100 million in stock options, corporate Maybach (Germany luxury car), 
corporate Rolls Royce, Corporate Lear jet, Corporate $500 million home in Houston Texas, 
$300 million retreat in the Bahamas..etc etc. 

sez:

"Tony...what's this memo from Dalton (McGinty) asking about a possible reduction
in the price of gasoline to help the people there?

(Heywart): " dunno Chief...I guess he's asking for some kind of reduction
in the cost of gasoline for Ontario, so he doesn't have to drop the taxes
on gasoline...maybe?

CEO Sam: Don't we have a couple of refineries in Southern Ontario?

Heywart: Yes, we do Chief, but we've had to cut production to maintain
higher profit margins for ourselves and our distributors. If the cost
of fuel gets cut by the province, we'll just have to raise our wholesale
price to maintain the current level, so we can continue raising prices
over the next few months.

CEO Sam: "So I guess, there is nothing we can do for them. What's our
projected target for gasoline prices for this year, Tony? " 

Heywart: pointing to a dartboard on the wall..." I dunno Chief..lets
throw a dart and try to aim at the bullseye..if we hit it..we will be raising
prices to $2.50 a litre.... gradually... of course."

(then pointing to a second dart board with explanations to justify price increases)

of course, we will put together press releases to blame it all on world shortages, lack of refinery capacity, middle eastern wars, oil futures, high provincial and federal taxes, high consumption by the Chinese, lack of drilling resources, new regulations for drilling, higher fuel delivery, refinery upgrades..and anything else that we can get them to swallow."

CEO Sam: "Good man Tony! I guess you will looking for something "extra"
in your Christmas stocking this year?"

Tony (CFO of Big Oil)".."Thanks Chief!..pleasure to work with you!"


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## HaroldCrump (Jun 10, 2009)

That's hilarious, Caverman!

Dalton McGuinty sure has the gall to talk about gas prices.
The direction of gas prices was very well know last summer when he decided to slam the HST down our throats.
Gasoline prices used to be PST exempt, but they are not HST exempt.
This is another of those "silent" taxes.
The provincial govt. is raking in a handsome profit off the increased gas prices without having to lift a finger.

And since most other retail prices are affected by gas prices, esp. food, everything gets more expensive and thus means even more revenue for the provincial govt.

Not the mention the 10c. or so provincial gas tax that they continue to take in as well.
All in all, gasoline is a nice cash cow for the provincial govt.

They are all crying crocodile tears and making sympathetic noises, but have zip interest in doing anything about it.


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## Sustainable PF (Nov 5, 2010)

@Carverman - FUNNY! Got a kick outta that.

Now which party should we elect to make sure this big business gets more corporate tax cuts. Bring em on! Er, we did. Give em a cut anyhow, they smoke fine stogies.


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## andrewf (Mar 1, 2010)

I'm mystified how people get so worked up about gas prices. Yeah, it sucks to pay more for something, but let's not foam at the mouth here.

Attributing every price increase to a cabal of business and political interests sounds a bit kooky. Just sayin'.

We can lower the gas tax, but we'd be borrowing money to do it. No thanks.


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## CanadianCapitalist (Mar 31, 2009)

Unless someone can show there is collusion, I don't see much point in getting worked up over gas prices. Commodity prices are going to fluctuate and sometimes shoot up sharply. People have short memories. Do you remember the loud complaints over high natural gas prices a few years back? Did you check your heating bill lately? If your home has natural gas heating, your heating bills likely dropped by half last winter. Funny how we loudly we complain when prices go up but we don't hear much when prices go down by half.

If you think oil companies are raking it in, the solution is quite simple. Buy a bit of Suncor and Esso for your portfolio. At least the pain at the pumps will be offset by the gains in your portfolio.


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## m3s (Apr 3, 2010)

CanadianCapitalist said:


> If you think oil companies are raking it in, the solution is quite simple. Buy a bit of Suncor and Esso for your portfolio. At least the pain at the pumps will be offset by the gains in your portfolio.


Haha I tell people this when they complain about gas prices. I don't mind gas going up anymore. I don't complain so much about being ripped off by banks or telcos anymore either


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## the-royal-mail (Dec 11, 2009)

That's the thing though CC. I have a global energy fund that is comprised of many of these gas companies. The performance sucks.

P.S. No reply to my PM of a few weeks ago?


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## CanadianCapitalist (Mar 31, 2009)

Owning a portfolio of oil companies will not be a perfect hedge for your gas expenditure. But over long time frames if you are spending more on gas, you will see profits in your portfolio. If you recall, we paid around 50 cents for gas in the late 1990s. Today we are paying $1.30 or so. How much have your oil stocks gone up by? A quick glance shows Suncor up more than 4x, Imperial up more than 5x etc.

PS: Thanks for the reminder. I just replied.


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## Echo (Apr 1, 2011)

Why does it always have to be some big conspiracy or collusion when the price of gas rises? Ever hear of the expression, "make hay while the sun shines"? 

When the hotel industry was booming a few years ago the cost to rent a room went up 50% or more in some markets. As demand fell, the price comes back down. If an industry sees a window of opportunity to profit due to pent up demand or short supply, that's their prerogative to do so.

Average gas prices have yet to reach their record high from the summer of 2008 of around $1.42. And how quickly we forgot that prices fell sharply all the way down to $0.73 by the end of that year.


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## Echo (Apr 1, 2011)

carverman said:


> Have you ever noticed that gas stations all change their prices at the same time? Obviously collusion and maybe a secret decision amongst themselves,
> not to compete with each other.


This is not collusion. Again to use the hotel example, there are revenue managers monitoring competitor rates many times a day and then adjusting their own rates according to their price/value model (i.e. Radisson prices themselves $10 below Delta). 

With gas stations, there is no price/value model since the fuel coming out of the pump is the same wherever you go. That being said, as a gas station owner if you have a particularly attractive location or if you notice more people in your area fill up in the morning or after work then you might raise your price a few cents during those times to capitalize on the demand.

This is just smart business and it happens in every other industry, yet somehow when it comes to gas prices everyone cries conspiracy.


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## carverman (Nov 8, 2010)

mode3sour said:


> Haha I tell people this when they complain about gas prices. I don't mind gas going up anymore. I don't complain so much about being ripped off by banks or telcos anymore either


It's part of the natural process of human evolution..winners and losers.
You have to know which side of the equation you fit in.

If you are on the winning side..you have no reason to complain.
If you are the losing side (a consumer) you still have no reason to complain,
because gas is available (maybe people are buying less??), and you can 
jump into your vehicle, drive over to a local bar and watch the NHL playoffs on a BIG screen and drink some of your finest beers.
After a few beers, you will have forgotten about what it was you were
going to complain about....BRRRPPP!!! 

"Now the thing that I call livin' is just bein' satisfied
With knowin' I got no one left to blame
Carefree highway, got ta see you my old flame
Carefree highway, you seen better days
The mornin' after blues from my head down to my shoes
Carefree highway, let me slip away
Slip away on you....."


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## Mockingbird (Apr 29, 2009)

CanadianCapitalist said:


> Unless someone can show there is collusion, I don't see much point in getting worked up over gas prices.


Here's an interesting paper published recently.

Collusion with asymmetric retailers: Evidence from a gasoline price-fixing case

MB


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## carverman (Nov 8, 2010)

Echo said:


> Why does it always have to be some big conspiracy or collusion when the price of gas rises? Ever hear of the expression, "make hay while the sun shines"?


Sure, farmers do it all the time...but if it applies to the gasoline industry..
it's just another name for collusion.



> Average gas prices have yet to reach their record high from the summer of 2008 of around $1.42. And how quickly we forgot that prices fell sharply all the way down to $0.73 by the end of that year.


That was due to Katrina, knocking out a couple of refineries in Louisiana.
Nothing to do with what was happening in Canada. Prices fell after 
the knocked out refineries came back on line in the states..and here
in Canada as well.

Todays headline:
MPS TO GRILL GAS INDUSTRY...
smells like a BBQ coming up to me.

Once parliament reconvenes..the gummint will call gasoline refiners, distributors and retailers before a Commons commitee to explain their
pricing structure. CIBC analysis showed that the average household
family will spend $950 more to fill the tank than last year .

The Tories are unlikely to lower gasoline taxes . Federal gov't has a 10c
per litre excise tax and 5% GST is charged on top of that tax. 
"Somebody's greedy, somebody's asking too much, so we will all be changing
our lifestyle, mentioned a female driver.

In Toronto, Gas n' Dash thieves are siphoning fuel from parked cars. Some
motorists have been known to use stolen or fake licence plates to fillup
and take off without paying. These gas theives are known to police
as "Drive-offs"..filling their tanks with expensive gas, laying down the nozzle
and speeding off. 
<end of newspaper article>

Tony Clement, Minister of trade and commerce vows to take Big Oil to task
to explain the reasons for high gas prices, as he doesn't understand why
they are rising so much himself.

*FLY ON THE WALL *(House of Commons standing committee on high gasoline prices) 

Minister Clement: (Speaking to Big Oil representatives, retailers and
distributors) "Thank you gentlemen! The reason we are here today is
to explain and understand the seemingly high, and constantly rising
prices of gasoline. I'm hearing a lot of complaints now.

I would like to open the floor to Mr. Sam Houston."

Sam H: "Minister Clement, its not that simply as oil just coming out of 
the ground, you see, all we have to do is just deliver it to the gas station. 
There are many processing requirements and costs involved to deliver that gasoline to the motoring public.

I will let my CFO (Tony Heywart, formerly CEO of BP) to explain
the complexity of setting prices today."

Tony H: Thank you. I would first like to present the cost analysis of
drilling these days. As you know, last year was a disastrous year for us,
from the profit point of view. 

The Gulf oil disaster costs us billions! The explosion rocked the socks off the drilling industry for a while and that set us back in billions of dollars of lost
revenue during the cleanup phase. 

In the oil industry we try to take advantage of new technology,
and in this case the drill pipe cutoff ram shears that we had made in
China to our specs, just didn't perform as expected on the BOP.
They jammed up!

We specified Rc42 hardness on the shears and the Chinese factory 
reversed the R and the numbers and we got 24Rc. Needless to say, 
we deny any wrongdoing or fault in the millions of barrels lost to the refineries,
not to mention the the huge cost of the cleanup. 

Minister Clement: What does this have to do with the current rising oil
prices?

Tony H: To put it in a nutshell, minister, it is uncontrolled costs steming
from the gulf oil disaster which put BP in a precarious financial position and
the world spot price on oil, our reduced refinery capacity which needs
expensive upgrades, as well as new storage and delivery infrastructure is eating
away heavily at our bottom line. So we feel we need to charge accordingly to
pay salaries and corporate taxes.

Minister C: Oh I see, so this is a temporary situation and we should
expect a drop in gasoline prices towards the end of summer?

Tony H; Precisely, minister. We hired a new cost analysis team
Dewey, Screwum & Howe to determine how we could afford to let prices drop.

Also, minister, we now have a "underwater deep drilling expert" on the scene to
provide us with more factual information. 

Minister C: Who is that?

Tony H: I think he goes by the name O. bin Laden, from what I understand.


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## Andre112 (Apr 27, 2011)

Echo said:


> Average gas prices have yet to reach their record high from the summer of 2008 of around $1.42. And how quickly we forgot that prices fell sharply all the way down to $0.73 by the end of that year.



Crude oil went from $120 to $150 a barrel, while at the pump it was $1.2 to $1.50 per liter. Crude oil price fell to $60 a barrel, while at the pump it only went down to $0.8x. (I never saw anything below $0.80). When they said the gas at pump was crude oil bought 2,3 months ago and took time to drop, yet they raised prices as soon as anything natural disaster happened.



And yes, I will buy their stocks to offset some costs.


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## sags (May 15, 2010)

Talking about "doing something" or "talking to someone" about high gas prices is nothing more than a photo op for politicians.

How many times in the past have we heard they were going to do something about:

Gas prices.

Insurance rates.

The difference in price between goods sold in the US and Canada.


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## ghostryder (Apr 5, 2009)

CanadianCapitalist said:


> People have short memories. Do you remember the loud complaints over high natural gas prices a few years back? Did you check your heating bill lately? If your home has natural gas heating, your heating bills likely dropped by half last winter. Funny how we loudly we complain when prices go up but we don't hear much when prices go down by half.



Or the people who complain when the price of oil goes down 30% and demand that gasoline should go down exactly 30% as well.

Why weren't they protesting in the streets when the price of oil went from $70 to $147 a barrel, while gas went from $1 to $1.30? Shouldn't they have been protesting on Parliament hill demanding that gasoline also double in price?


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## calrest (Apr 13, 2011)

I think it´s a good question. The main reason for the growth was high petroleum prices, according to Statistics Canada. I´d like to say one important information that The Industrial Product Price Index (IPPI) increased 0.9% in March, driven by an 8.2% increase in petroleum and coal products. Excluding these products, the IPPI would have decreased 0.1%. Some Canadian exporters who trade with the US are paid on the basis of US dollar prices. Basically, each kind of energy is my agenda. I recommend one especially article about the current moves of prices - http://calgaryrealestate.ca/2011/05/high-gas-prices-expected/


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## carverman (Nov 8, 2010)

calrest said:


> I think it´s a good question. The main reason for the growth was high petroleum prices, according to Statistics Canada. Basically, each kind of energy is my agenda.


Fine, Big Oil is trying to maximize profits, but there are other factors.
Drilling in the far north is expensive business.
Extracting oil from the tar sands is expensive business.
Productive wells which were drilled many years ago, are tapering off
in production.

Sure, they are finding new sources to replace the older wells and try to
keep up with demand, but the world's demand on oil is growing and law
of supply and demand governs prices. 

I wouldn't take what Stats Can is trying to sell to the bank. Sure inflation
has something to do with it, but inflation is a small part of it.
There is only so much oil in the ground/under sea and it's getting more
and more expensive every year to get it.

If they are targetting $1.40 this summer (when everyones out driving) as
the high water mark for this year, you can bet that once oil prices reach
that level,they aren't going to come down much unless another recession
is triggered, as in the last one.

Next year, they will start from $1.35 to $1.40 per litre and go from there.
Europe is already paying around $2 to 2.25 a litre, so there is room for
the price to climb here in NA.

Unfortunately, with the world demand for oil very strong these days,
based on an oil based economy, spikes in oil/gasoline prices will have
a pronounced effect on EVERYTHING..from groceries to house construction
to cost of importing goods from China in container ships..which run on
bunker oil.


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## carverman (Nov 8, 2010)

sags said:


> Talking about "doing something" or "talking to someone" about high gas prices is nothing more than a photo op for politicians.


Yup! That's all it is..media exposure for the politicians. They cannot control
prices, nor roll them back. 



> How many times in the past have we heard they were going to do something about:
> 
> Gas prices.
> 
> ...


Well as we may now from the past, politicians are basically 50% BS, 25%
political rhetoric, and the other 25% a mixture of infighting, attacking each
other, and blowing taxpayer dollars. Most apparent in an election year,
as they need to go after votes to keep their jobs.

Anything they do that may benefit their constituents or the general taxpayers
is a bonus. Governments are there to redistribute income..and most of the
time not very efficiently, because unlike private corporations they can be
deeply in debt and even run a deficit..a priviledge that is not extended
to the corporate sector.

Gas prices and insurance rates will continue to rise, and neither the
feds or provinces can do anything about it.

Remember Jean Chretien and his red book election promise to "kill the GST"?
Lot of hot air..as soon as he got to be PM..he found out the real situation
and that was quietly dropped off the table of election promises.
Sure, Harper cut it by 2%..but the national debt has gone up significantly..
and in the end..we will pay dearly for that cut in 2% GST..health care and
other benefits to tax payers.

as the saying goes.."no matter how you slice it...it's still baloney!"


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## andrewf (Mar 1, 2010)

carverman said:


> Sure, Harper cut it by 2%..but the national debt has gone up significantly..
> and in the end..we will pay dearly for that cut in 2% GST..health care and
> other benefits to tax payers.


Yep. That cut has added ~$60 billion to the debt so far and counting at about $15 billion per year.

I'm sure our kids won't mind.


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