Figuring out gas prices complex: Economist

Hey there, time traveller!
This article was published 16/05/2022 (1418 days ago), so information in it may no longer be current.

Supply and demand is being blamed for the ever-soaring price of gasoline and diesel, but there are far more factors at play that experts and those at the pumps are questioning.

Brandon gasoline prices took an eight-cent jump on Friday, from $1.79 a litre to $1.87. Diesel also rose to about $2.06 a litre, up from an average of $1.83 on May 9.

Everyone from freight haulers to visitors were met with hefty bills after filling up on Saturday, including trucker Tracy Angell, a Calgary resident who stopped in the Esso Commercial Cardlock station on the Trans-Canada Highway to fill up to deliver a tiny house to a client.

She said it is aggravating and very worrisome after dealing with multiple price spikes over the past two months.

“My fuel costs have been doubling daily since all this started,” Angell said. “I can’t raise my prices much more than I already have.”

She added hauling freight has become harder and more expensive for everyone, which is why store shelves are bare and prices for everything are going up.

Also a farmer, Angell said costs for her farming business have increased exponentially and she is really unsure how much more she can afford to pay.

Canada handed over control of its natural resources to foreign interests and has no concern over how they hurt everyday consumers, Angell said.

Across the street at the Esso station on Middleton Avenue, Stephen Milette of Saskatoon was filling his car and also contemplating why gas was so high. He said it’s confusing because the price of gas used to be tied to the market value of a barrel of crude oil.

Now, he says, it’s impossible to figure out.

“The price of crude is down, but it looks like oil companies are charging what they want and they know they can,” he said. “It’s a joke how much they are charging, but there’s not much we can do.”

The price of crude on Saturday was US$110 a barrel in the U.S. markets. It hit a high of US$130 on March 6 of this year, according to Bloomberg’s website and is expected to hit US$114 a barrel by the end of this fiscal quarter.

The opinions of both Angell and Milette have some basis in fact, according to Irwin Lipnowski, an associate economics professor at the University of Manitoba specializing in industrial organization, microeconomics, public finance and applied game theory. While he could not specifically speak to the prices and volatility, he did say there are a number of factors from geopolitical conflicts, environmental concerns and supply chain issues.

However, he did say people are justified in thinking oil companies are charging what they want and they are taking advantage of ongoing problems.

“The oil cartels say supply and demand and they are in a way right, but what they are doing is they see an opportunity and they are taking it and frankly, I’m surprised they didn’t take advantage of this sooner,” he said. “People perceive there is a shortage, places like Germany are under pressure to not buy oil or gas from Russia, so they go on the world market, and that puts pressure on the oil supply.”

There is also an anti-oil drilling and fracking movement that has gained momentum over the years, so there is less drilling, meaning fewer active wells, also putting pressure on prices. However, he said it’s a very complicated question and economists are often reticent to talk to the public about it because people are looking for quick answers, which they don’t have.

He explained oil companies could’ve been charging far more during the height of the COVID-19 pandemic and global shutdowns, but didn’t, even going so far as to lower prices. Demand was way down, he said, which drove prices down, and inventory piled up. Oil cartels kept the price low and dumped oil on the market to keep wells operating. Plus in a time of crisis, increasing prices would’ve likely caused a loud public outcry and governments to intervene.

As well, a small group of countries and corporations control the majority of the oil supply. They do work together on some levels to keep oil prices at a level they can profit from.

“You notice every time prices go up or down, pretty much every gas station does it lock-step within a penny of each other,” He said. “It shouldn’t surprise people when they do this. They control the gasoline.”

Talk of lowering taxes and curtailing carbon pricing wouldn’t help push the cost down much, said Lipnowski. The price of gas and oil is set on international markets.

In many ways it comes down to capitalism being inherently greedy, he said. This is a system that is driven by entities that are out to make as much money as they can.

There are a few altruistic bodies in the system, he said, but in reality, they are all trying to make money for their own purposes.

“It sounds very socialist, but that is how capitalism works and has always worked,” he said. “Perhaps if the system was retooled to be more fair in the favour of the consumer, prices wouldn’t rise and fall so much, but there is no one solution for this problem.”

» kmckinley@brandonnsun.com

» Twitter: @karenleighmcki1