Posted at 9:00 a.m.
Hello, I can understand that an oil importing country has no choice but to suffer the current market increases. But for a country like Canada, which is an oil exporter, why should the Canadian consumer pay such increases in the price per litre? The price at the pump should be related to Canadian production costs, plus a reasonable profit margin. How come the price at the pump increases so quickly with market speculation?
Real Meunier
This is a question that many of our readers ask themselves. To answer, The Press called on Marc-Antoine Dumont, economist at Desjardins, and Nicolas Ryan, director of public affairs at CAA-Quebec.
Oil is a product that is traded on the international market and whose price fluctuates in the same way everywhere in the world, recalls the Desjardins economist. “If there is a problem that limits the supply, as is currently the case, the price will increase everywhere,” explains Marc-Antoine Dumont.
From the oil well to the gas pump, several factors can cause the price to fluctuate. Transportation and refining capacity, for example, affect the price at the pump. The exchange rate can also play, insofar as oil is bought and sold in American dollars. Oil and gasoline are commodities listed on the stock exchange, so speculation, ie investor expectations, adds volatility to prices. But it is first and foremost the supply and demand for oil that dictate the prices of crude oil and its derivatives, underlines the economist.
The only advantage of being a producing country is that you don’t have to worry about supplies.
Marc-Antoine Dumont, economist at Desjardins
When the price of oil soars, the companies that produce it make more profits, because their cost of production remains the same. The same cannot be said for refiners, distributors and retailers, who must pay more to obtain supplies. It’s a supply chain that reacts very quickly to price fluctuations, says the Desjardins economist.
Unless there are price controls or subsidies for gasoline, as in some countries, consumers in an oil-producing country pay the market price.
CAA-Quebec, which closely monitors price fluctuations at the pump, notices large variations according to regions, cities and even neighborhoods. “It varies a lot, depending on the contracts the retailers have and the competition,” observes Nicolas Ryan.
Most motorists have already noticed that prices at the pump rise quickly when the price of crude soars, but come back down more slowly when its price drops. CAA-Quebec confirmed last November that it happens. After a sharp drop in crude, prices at the pump fell rapidly in the United States, but not in Quebec, recalls Nicolas Ryan. Retailer margins climbed to 15.7 cents per liter for several days, compared to the annual average of 5.5 cents.
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