A price per liter of regular gasoline rising to $2.15 in Montreal allows us to observe both a swelling of the refining margin and the speculative negotiations generated by the unjustifiable invasion of Ukraine which was to hold the potential to cause some scarcity of global supply, which has not come.
On Monday, the average posted price of regular gasoline on the Plateau Mont-Royal, in Montreal, was up more than 5% compared to the previous business day. According to data from the Régie de l’énergie, this increase reflects a 3% increase in the minimum acquisition cost, but also a 52% increase in the retailer’s margin excluding all taxes, which went from more than 10 cents to more 15 cents per liter in the greater Montreal area. Elsewhere in Quebec, prices were fairly stable between these two days, fluctuating between 1.98 and 2.07 per liter depending on the region. The increase in the minimum cost of transport was offset by a reduction in the retailer’s margin, which was however on Friday at a level generally higher than in Montreal.
Beyond these occasional and daily adjustments, on a weekly average, the price of crude oil has remained relatively stable, around 87 cents per liter since the end of March, which has not prevented an increase of 8% (weekly average ) pump prices, Kalibrate measure. With a volatile retail margin, but hovering around 5 to 6 cents per liter on average, the explanation may be a jump in the refining and processing margin, which went from an average from 27 cents from February 24 to mid-April, to more than 40 cents per liter since.
Still according to Kalibrate data, between May 2021 and May 2022, the weight of the price of crude in the price per liter is 45% against 40% a year earlier, and that of the refining margin at 23% against 18 % in 2021, which lowers the tax burden from 37% (in 2021) to 29% (in 2022) and that of the retailer’s margin from 5% to 3% one year later. Over this one-year period, the influence of the refining margin on the evolution of the price at the pump will have been 1.4 times greater than that of the price of crude oil.
Many figures, therefore, to try to illustrate the weight of expectations and speculation in the distortion of reality on the oil market.
Russian oil still in demand
Especially since, contrary to certain scenarios that have fueled this speculation, Russian oil remains very present despite the sanctions and continues to sell well on the market. The news magazine Nikkei Asia quotes data compiled by Refinitiv showing that from February 24, the day Ukraine was invaded, to April 18, 380 tankers left Russian ports, up from
257 tankers over the same period last year. Of the number, 115 were heading or were to be heading to Asia, mainly to China, South Korea and India. These Russian oil imports increased by 33% in the case of China, and were multiplied by eight in the case of South Korea compared to the corresponding period of 2021. For its part, India remained a big buyer of Russian oil while deliveries continued in parts of Europe.
The media Politico adds to this and quotes the Global Witness, a group fighting against the plunder of natural resources, which estimates that oil tankers belonging to Greece, Cyprus and Malta, managed by them, or flying their flag have supported at least 150 million barrels of crude oil from Russian ports between February 24 and May 10. In a recent report, the journal Lloyd’s List pointed out that Greek shipowners increased their deliveries in April, accounting for 76 of the 190 tankers carrying oil leaving Russian ports, compared to 30 out of 172 a year earlier.
In total, an economic adviser to the Ukrainian government estimated in an interview with Politico that Russian oil exports bring Moscow US$1 billion a day.
Oil sold at a discount
Soaring oil prices have left the door wide open for buyers to do business with Russia despite sanctions. Especially since Russian oil is sold at a deep discount on the market. According to Refinitiv, while the sanctions have fueled the rise in oil prices, they have also caused a 30% difference in Urals Crude Oil, the Russian benchmark price. As of December 31, 2021, Crude Oil Urals Europe was trading at US$77 per barrel, a “spot” price similar to that of Brent from the North Sea. On February 24, the two benchmark stocks were commanding a price around US$95. Then there was a stall. Today, Brent is touching US$112 a barrel against US$82 for Urals.
It would also be necessary to place the whole thing in the perspective of a speculative surge in energy prices, explaining most of the inflation of the approximately US$30 a barrel currently separating West Texas Intermediate and Brent from a so-called equilibrium price of about US$75-80 estimated by experts before the outbreak of war in Ukraine. An equilibrium price that today has just been lowered by a notch or two due to the slowdown of a Chinese economy imposing a policy of zero COVID.