Centre for Energy™ : Gasoline prices hit new highs

Gasoline prices hit new highs

Canadians have never paid more for gasoline than they did during the summer of 2005.

Across the country, average pump prices surpassed $1 per litre in mid-August and averaged 94.9 cents per litre for regular unleaded grade through June, July and the first two weeks of August, according to figures reported by M.J. Ervin Associates of Calgary.

As August drew to a close, the huge Hurricane Katrina struck the United States Gulf Coast. Katrina forced shut-ins of offshore oil production and inflicted damage on many of the coastal refineries, as well as on the Louisiana Offshore Oil Port (LOOP), the largest oil import centre in that country. Amid supply concerns, oil and gasoline prices that had begun to moderate moved upward again.

Even in constant dollar terms, last summer's prices beat the record Canadian annual average price that has held up for 20 years. The year-long record price was set in 1985 at 51.4 cents per litre, according to Statistics Canada. That converts to 86.1 cents per litre in 2005 constant dollars, or more than eight cents per litre less than this summer's average of 94.9 cents.

The 1985 peak in gasoline prices came after more than a decade of oil embargoes, war in producing nations of the Persian Gulf and double-digit inflation. Annual average crude oil prices from 1979 to 1982 held at levels between $25 and $38 US per barrel during those years, according to the BP Statistical Review of World Energy.

In constant dollars of today, those prices were equal to a range of $68.25 to $96.40 per barrel. Pump prices of the 1980s didn't reach their peak until three years later, in 1985. This was partly due to crude prices that remained well above long-term averages and partly because interest rates continued to rise past 16 per cent, carrying business operating costs with them.

While this summer's peak oil price of $66.86 couldn't match constant-dollar levels of the '80s, gasoline prices shot well above levels seen in the 1980s. During the '80s, annualized gasoline prices remained in the low-to-mid-80-cents per litre, while average prices approached 95 cents per litre this summer.

Today's pump-price premium - about 10 to 15 cents per litre above the constant-dollar records of the 1980s - is largely due to taxes, according to Dane Baily, spokesman for the refiners and marketers' Canadian Petroleum Products Institute.

Gasoline taxes rose from 6.7 cents to 13.4 cents per litre between 1980 and '85, Statistic Canada figures show. Those rates convert to 16 to 22.5 cents per litre in today's values, while today's Canadian average gasoline contains 33.8 cents of taxes per litre.

"During the 1990s pre-tax, wholesale gasoline prices declined with the cost of crude oil. But retail pump prices only partially reflected the wholesale price drop because federal and provincial governments increased taxes, including the GST, which is a tax on the other taxes," Baily said.

"Our members don't take a position on taxation. That's between voters and their governments." But he noted that refining and marketing profit margins have averaged about 1.2 cents per litre over the past 8 years.

"In the best years, our industry hasn't made two cents per litre, while governments make about 30 cents per litre," he said.

Baily said another cause of rising gasoline prices is that strong demand growth has not been matched by additional refining capacity. Although no new refineries have been built in North America for over 20 years, significant new capacity has been added into existing refineries. But he said it hasn't been enough to keep pace with the new demand. Refiners have been investing large sums to meet environmental regulations, including $5 billion to drastically reduce sulphur in gasoline and diesel fuel. But, with unacceptable profit levels through much of the 90s, they're reluctant to spend $2-3 billion to build a new refinery.

N.B. Statistical information may vary, depending on the source and date of publication. Sources for this article include the Bank of Canada, the BP Statistical Review of World Energy 2005, the Canadian Petroleum Products Institute, the International Energy Agency, M. J. Ervin & Associates, Statistics Canada and the U.S. Department of Energy Information Administration.

Crude oil and gasoline historical pricing trends