Common misconception about oil and gasoline

The letter by Ross Calderwood perpetuates the common misconception that the price of gas is directly related to the price of oil.

The letter by Ross Calderwood (Feb. 24, 2016) perpetuates the common misconception that the price of gas is directly related to the price of oil. While there is linkage between the two, there are also other factors to consider, so one cannot draw a direct line between the price of oil and the price of gas.

For one thing crude oil is a pure commodity, akin to trees; whereas gasoline is a refined product with an analogy of milled lumber or even a piece of wooden furniture.

Then there is the price of transportation. Gasoline is barged to the Island terminals and subsequently transported by truck to the outlets. Each link in the distribution process adds cost to the finished product. Drawing a direct line between oil and gas is like drawing a direct line between the price of cotton (another commodity) and the shirt you wear. Each point of distribution must not only cover its costs but also make a profit.

Next is the realization that as the price of oil dropped so did the purchasing power of the Canadian dollar. If one in Canada was to buy a barrel of crude at $30 USD they would have to pay approximately $39 CDN based on today’s exchange. Then we need to consider that gasoline is its own commodity and can be traded separately from oil and therefore speculators can drive up the price of gas.

Then there are the consumer taxes. But to assert that the government won’t address the price of gas because it benefits from the tax is misplaced.

Finally, and this is where Mr. Calderwood is somewhat correct, the gasoline companies need to make up some of the lost oil revenue in other areas. However, in Canada 68 per cent of gas stations are independently owned according to government statistics. They are not the “American-owned gas stations” Mr. Calderwood states and they too need to make a profit and cover their costs of doing business.

 

Peter D. Morris

Mill Bay