World Oil Prices Going Through the Roof

[Riverwind]

One of the biggest winners is the federal government. Because they charge GST on motor fuels, higher prices are a windfall for the Feds. All other fuel taxes are a flat rate except for the GST.

Why should fuel be treated any differently than other goods when it comes to the GST? The feds get more revenue if housing prices or lawyers fees soar too.

Furthermore, anyone who needs to use gas for business purposes gets the GST the pay on gas refunded to them so the only real losers are people who insist on buying gas guzzling vehicles that they don't really need to meet their transportation needs.

[Wilber]

One of the biggest winners is the federal government. Because they charge GST on motor fuels, higher prices are a windfall for the Feds. All other fuel taxes are a flat rate except for the GST.

Why should fuel be treated any differently than other goods when it comes to the GST? The feds get more revenue if housing prices or lawyers fees soar too.

Furthermore, anyone who needs to use gas for business purposes gets the GST the pay on gas refunded to them so the only real losers are people who insist on buying gas guzzling vehicles that they don't really need to meet their transportation needs.

I don't disagree. I am just pointing out that companies aren't the only ones who benefit from higher fuel prices. And I suppose businesses which buy gas guzzling vehicles that they don't really need to meet their transportation needs. By the way, not all goods are treated equally when it comes to GST. Take food for instance.

[geoffrey]

Half the price of a galon of gas is profit.

Really.

Price breakdown

That's exactly right.

There isn't much margin in downstream, profit is there over the whole system, but there isn't much profit per litre, 3.5% I've heard as the average. The government is taking way way more than any oil company.

[Leafless]

geoffrey

You wrote- " There isn't much margin in downstream, profit is there over the whole system, but there isn't much profit per litre, 3.5% ',ve heard is the average. the government is taking way more than any

oil company."

I wouldn't be to sure about that one.

A barrel of oil = 42-gallons.

It makes about 21 gallons of gasoline.

Say a barrel of oil increases in price $10.00.

So you might think a $10/21 or .48 cents per gallon rise in the price of gas would be correct.

That would be right if the WHOLE 42 gallons was used up to make 21 gallons of gasoline.

BUT the barrel of oil makes about ANOTHER 21 gallons of other fuels like home heating oil.

THIS MEANS a gallon of gas should only go up 1/42 because a gallon of heating fuel and other types processed from the same barrel would also rise by 1/42 or about .24 cents a gallon of the rise in oil price of a single barrel of oil.

Of course these fiqures are only approx.

[geoffrey]

Leafless,

Remember, its not as simple as a barrel of oil appears, turns in to gas and appears in your tank. The barrel of crude, priced in sweet light terms, where as Canadian oil tends to be significantly heavier (less pure, costs more to refine), forms the base of the cost, but doesn't reflect a massive infrastructure to get that barrel to your gas tank.

Canadian regulations have hurt any development of refineries in Canada, so we have to transport much of our oil south, to have it sent back for our consumption. Less regulations would allow us to refine more oil in Canada, cutting down on the midstream costs.

Pipelines aren't cheap, and trucks are even more expensive.

These are real costs, massive costs, and of course along the way each company that touches the barrel before it gets to your gas tank takes there minute 1 or 2% share.

It's way more involved than that simple example you've given.

[Leafless]

geoffrey

You wrote- " It's way more involved then the simple example you've given."

That is a matter of opinion, the point being other fuels that represent the other half of a barrel of oil are easier to refine requiring less refining such as home heating oil but still represent the same increase as gasoline per barrel of oil.

Since you claimed Canadian oil is heavier and requires extra refining the burden is on you to supply proof between say Iran oil or Texas oil and Canadian oil relating to refining costs.

We are not talking small change here as the difference based on an increase of a SINGLE barrel doubles the profit of that increase for Canadian oil companies.

Unless those numbers can be proven it can be said with a high degree of confidence that Canadians are being short changed at the gas pumps.

[margrace]

Interesting that Mr. Harper was all for cutting the taxes on gas, now he's in power he's doing a back down. Welcome to the real world Mr. Harper, you have to do what your rich supporters tell you don't you.

[geoffrey]

geoffrey

You wrote- " It's way more involved then the simple example you've given."

That is a matter of opinion, the point being other fuels that represent the other half of a barrel of oil are easier to refine requiring less refining such as home heating oil but still represent the same increase as gasoline per barrel of oil.

Since you claimed Canadian oil is heavier and requires extra refining the burden is on you to supply proof between say Iran oil or Texas oil and Canadian oil relating to refining costs.

We are not talking small change here as the difference based on an increase of a SINGLE barrel doubles the profit of that increase for Canadian oil companies.

Unless those numbers can be proven it can be said with a high degree of confidence that Canadians are being short changed at the gas pumps.

You need proof that heavy oil is more expensive to refine? Well why is interest in the tar sands only peaked as of late? It costs more to refine bitumen to light crude, before refinement into the distillation process. There is a whole other step in the process, of course it costs more. Not to mention the cost of digging your oil out the ground instead of just setting up a well.

Pipelines that transport heavy crude are more expensive to construct because they need costly materials with higher strengths as the heavier oil wears away pipeline much more rapidly. This needs to be seen as part of the refinement process.

If you want to take conventional heavy crude, instead of tar sand which is where most of Canadian oil is, you also have the additional refinement step from heavy crude to light crude before its refined.

Picture it like this, Canada oil is in pourous rock (heavy oil, bitumen is what you see on TV in those trucks), we pretty much need to flush it out of the ground. Unlike in Saudi Arabia (which produces sweet light) it is pretty much in pools that you could put a straw into and oil would gush out. So the extraction cost is significantly higher in Canada. Simple analogy, but its accurate in reflection.

Leafless, its not as simple as dump barrel in, distill it, get your products. It has to be refined to sweet light before it can be processed into the parts. Gasoline has steps afterwards of course, due to regulations on the quality and purity of output.

And, all taxpayers make tons of money of it. Don't kid yourself, your taxes are lower because of high oil prices. Penn West (I picked it because I have the annuals on my desk, and reflects an average rate) pays $7.65 per barrel in royalties, before taxes. $300 million worth in 2004, and they are only a mid-level producer. That's 20% of revenue before tax, then massive tax on that. No other business type pays that amount to the government.

Here something for you to read if you don't believe Canadian oil is heavier or if you still don't believe that heavier oil costs more to refine:

The vast potential of Canada's oil industry has long been evident. However, most of the oil is trapped in the "tar sands" of northern Alberta. Extraction was for decades considered uneconomical due to the high costs associated with stripping oil from dense sand and shale. As long as more accessible sources of oil existed (e.g., in Indonesia, Saudi Arabia and Venezuela), international firms were unwilling to undertake the investments necessary. Consequently, oil trapped in the tar sands was not counted in official reserve estimates.

http://www.forbes.com/energy/2005/02/17/cz..._canadaoil.html

Also, I recommend the book "A Thousand Barrels a Second" by Peter Tertzakian. Interesting thoughts on what happens when our oil extraction becomes expensive and we need to resort to methods like the tar sands.

--

I'm not an engineer, if you want to learn more about the refining process those would be the people to ask. I know enough to get me by. I do have extensive knowledge of energy economics, it's something I've focused on at school, and thats where I've learnt these things. Specific cost differences aren't something I know off the top of my head, but the difference in extraction, transport and refinement are real between Canadian oil and Middle-East/Indonesian oil.

[Leafless]

geoffrey

You wrote- " You need proof heavy oil is more expensive to refine."

Most of us or many of us already know that for Alberta to make any money from tar sands that the price per barrel is in the range of $25.00.

Saying this and with the price of a barrel of oil now at $70.00 per barrel is a difference of $50.00 pure profit or around there.

What I ask you is for NUMBERS not a lecture.

Obviously numbers are hard to come by and both oil companies and government are not being truthful nor transparent concerning actual cost vs. profit. These numbers ARE NOT readily available.

All countries are faced with transportation cost and taxes.

Until I see the numbers to prove what you are saying I will still stand by my reasonable convictions and maintain that we are being ripped off at the gas pumps.

Both government and oil companies have nothing to lose by maintaining as high as possible a cost at whatever the market will bear and I can't say that I blame them if people continue to insist on keeping driving their vehicles no matter what the cost of gasoline.

[geoffrey]

I'll see what I can get from the engineering buddies on numbers, I'm sure someone will have something on it. I have a friend thats doing pipeline engineering at a heavy oil site this summer, I've sent an e-mail already.

Hopefully I'll have something for you Leafless.

There is some funny stuff happening at the pumps. Random increases by all the stations within 15 minutes of each other and stuff like that. No doubt, I'm on your side there. On the retail level, I'm skeptical.

But on the refinement level, our gas is more expensive. I'll have you numbers from one source or another soon, I'm curious to know the exact details too.

--

I think we are being ripped off by the government more than oil companies though at the gas pumps. I want all that increased revenue spent on the roads (like it's supposed to be) or returned to consumers. The government can't just willy nilly collect more tax and then spend on whatever is the topic of the day... oh wait, it can since Trudeau. Hopefully Harper will have more fiscal responsibility and give us our money... or fix the roads, I couldn't complain then.

[August1991]

A barrel of oil = 42-gallons.

It makes about 21 gallons of gasoline.

Say a barrel of oil increases in price $10.00.

So you might think a $10/21 or .48 cents per gallon rise in the price of gas would be correct.

That would be right if the WHOLE 42 gallons was used up to make 21 gallons of gasoline.

BUT the barrel of oil makes about ANOTHER 21 gallons of other fuels like home heating oil.

THIS MEANS a gallon of gas should only go up 1/42 because a gallon of heating fuel and other types processed from the same barrel would also rise by 1/42 or about .24 cents a gallon of the rise in oil price of a single barrel of oil.

Huh? Would you mind running that reasoning by me again?

The last time I checked, a $1 US rise in the world price of a barrel of crude lead to an approximate increase of 1 cent Cdn in a litre of gasoline.

Until I see the numbers to prove what you are saying I will still stand by my reasonable convictions and maintain that we are being ripped off at the gas pumps.

Both government and oil companies have nothing to lose by maintaining as high as possible a cost at whatever the market will bear and I can't say that I blame them if people continue to insist on keeping driving their vehicles no matter what the cost of gasoline.

Do you mean that we are being ripped off now because of high prices or that we have always been ripped off?

[Leafless]

August1991

You wrote- " The last time I checked a $1.00 rise in the worlds price of a barrel of crude lead to an approx. increase of 1-cent Cdn. in a litre of gasoline."

That's pretty close to what I posted.

There is 4.5 litre's per gallon x 1-cent = 4.5 cents.

I based my example on a $10.00 increase so 10 x 4.5L= .45 cents rather than the .48 cents I quoted.

You also wrote- " Do you mean we are being ripped off now because of high prices ot that we have always been ripped off."

Looks like we have been always ripped off.

The more a barrel of oil increases the more were ripped off.

[geoffrey]

Umm, a barrel of crude is more than a gallon, just to let you in on that secret.

It's actually 35 gallons, of which about 50% is gasoline.

Your calculations are a little different then.

A $10 increase in a barrel of oil (yielding 17.5 gallons of gasoline):

$10 X 0.50 = $5 increase per 17.5 gallons of gas.

Increase of 29 cents a gallon or 6 cents a litre.

Wow, guess what then. We are nearly exactly in line with raw crude cost increases when paying at the pump. Add in the increased transportation costs (oil companies need to buy gasoline too!). We are getting a bargin at the pumps.

Subtract the nearly 35% in taxes from that at the pump and about 55% in taxes from the $10 increase in crude in our example and you've got to wonder how the oil companies are making money.

EDIT: (My measurements are in UK gallons, there are 42 US gallons in crude if you wish to calulate it that way!)

[lost&outofcontrol]

The big oil Co. could follow CITGO example

In November 2005, the Washington Post reported, a group of Senators sent a letter "to nine big oil companies: With huge increases in winter heating bills expected, the letter read, we want you to donate some of your record profits to help low-income people cover those costs." They received one response: from CITGO, the Venezuelan-controlled company. CITGO offered to provide low-cost oil to low-income residents of Boston, later to the Bronx and elsewhere. Chávez is only doing it "for political gain," the State Department responded; it is "somewhat akin to the government of Cuba offering scholarships to medical school in Cuba to disadvantaged American youth." Quite unlike aid from the US and other countries, which is pure-hearted altruism. It is not clear that these subtleties will be appreciated by the recipients of the "12 million gallons of discounted home-heating oil [provided by CITGO] to local charities and 45,000 low-income families in Massachusetts." The oil is distributed to poor people facing a 30-50 percent rise in oil prices, with fuel assistance "woefully underfunded, so this is a major shot in the arm for people who otherwise wouldn't get through the winter," according to the director of MassEnergyConsumer Alliance, which will distribute low-cost oil to "homeless shelters, food banks, and low-income housing groups." He also "said he hoped the deal would present `a friendly challenge’ to US oil companies -- which recently reported record quarterly profits -- to use their windfall to help poor families survive the winter," apparently in vain.

**edit**(yes I'm a Chomsky whore)

[Leafless]

geoffrey

You wrote- " It's actually 35 gallons of which 50% is gasoline."

No matter what quanity you use for a barrel of oil it still like you say, it is still approx. 50% devoted to gasoline.

What about the other 50% devoted to home diesel, heating oil, kerosene etc. that increase is approx. the same as gasoline or could even be more.

Therefore the $10-dollar increase in a single barrel of oil should only be $5.00 since only half the quanity of a barrel of crude is devoted to gasoline but he whole increase ($10.00) is applied to gasoline only.

This is a huge rip off no matter what taxes are involved not saying of course that we are being over taxed as well.

[geoffrey]

geoffrey

You wrote- " It's actually 35 gallons of which 50% is gasoline."

No matter what quanity you use for a barrel of oil it still like you say, it is still approx. 50% devoted to gasoline.

What about the other 50% devoted to home diesel, heating oil, kerosene etc. that increase is approx. the same as gasoline or could even be more.

Therefore the $10-dollar increase in a single barrel of oil should only be $5.00 since only half the quanity of a barrel of crude is devoted to gasoline but he whole increase ($10.00) is applied to gasoline only.

This is a huge rip off no matter what taxes are involved not saying of course that we are being over taxed as well.

Gasoline is the product in demand.

The refined products from oil have to be viewed somewhat seperately from oil itself. Not many people heat with Kerosene anymore, so the price is considerably cheaper.

Are people making a killing off gasoline right now? Yup, probably. But if prices don't go up, we will have major shortages. Prices are the best way of limiting consumption.

[Leafless]

geoffrey

You wrote- " Not many people heat with kerosine anymore."

But they do do with heating oil and that went up in line with gasoline and the demand is high.

But what is really causing the barrel of oil to skyrocket as well as getting ripped off by the oil companies.

The answer to that is the same reason the Loonie is making such headway on the money market, a WEAK AMERICAN GREENBACK.

In Arab land the weak U.S. greenback does not buy the same amount of oil as previously so what do the Arabs do to compensate----UP THE PRICE OF A BARREL OF OIL.

[sharkman]

I haven't seen many comments on this thread addressing the premise that started it. Would anyone care to comment now? The idea is that some of oil producing countries are trying to manipulate the oil market upwards by making repeated scary or controversial comments, Iran and Venezualia to name a few.

These two, among others, hate the U.S. and the infidel West and love to see it struggle under these cartel like prices. Having the wealth of the U.S. pour into their coffers when the U.S. can do nothing about it makes them giddy with joy. So am I wrong?

[Toro]

I haven't seen many comments on this thread addressing the premise that started it. Would anyone care to comment now? The idea is that some of oil producing countries are trying to manipulate the oil market upwards by making repeated scary or controversial comments, Iran and Venezualia to name a few.

These two, among others, hate the U.S. and the infidel West and love to see it struggle under these cartel like prices. Having the wealth of the U.S. pour into their coffers when the U.S. can do nothing about it makes them giddy with joy. So am I wrong?

No.

But they are smart.

They're trying to maximize revenue.

[KrustyKidd]

They're trying to maximize revenue.

And if they don't buy anything form the west they will have lots of money to spend nothing on. The Sand People need MTV too and will need to have more money to get it now that all prices are going up.

[geoffrey]

Don't you all understand that a product in shortage increases in price? It's not even about costs, it about supply and demand, the most basic of economics.

If the price doesn't go up, people will continue to be wasteful, and guess what... we have shortages. Don't you remember/have read what happened last time the government tried to put price controls on gasoline?

[Leafless]

geoffrey

You wrote- " D'ont you understand that a product in shortage increases in price? It's not even about costs, it is about supply and demand, the most basic of economics."

Oil producing countries will not be in the positon to control a commodity that controls world society and if they think they are they will more than likely be forced to protect their resources.

[geoffrey]

geoffrey

You wrote- " D'ont you understand that a product in shortage increases in price? It's not even about costs, it is about supply and demand, the most basic of economics."

Oil producing countries will not be in the positon to control a commodity that controls world society and if they think they are they will more than likely be forced to protect their resources.

What does that have to do with anything?

You can't limit prices charged by oil companies. Trudeau tried it and we just stopped pumping oil. Massive shortages broke out. That's what happens with price controls. Econ 101 my friend.

Let the market set the price. If your concerned about cartel pricing at the pump, I'm on your side, I think there is fishiness happening there. But up and midstream production aren't charging more or less than market prices for the goods.

Most environmentalists encourage higher prices as it reduces consumption. So maybe we can see this as a good thing?

[Leafless]

geoffrey

You wrote- " Most enviromentalist encourages higher prices as it reduces consumption. So maybe we can see this as a good thing."

I have seen no evidence of this related to the automobile.

Prople continue to drive as fast or even faster in the city and highway with no regard for miles per kilometer per litre.

I think the way the U.S. and Canada is set up with suburbia type lifestyles and privacy the automobile provides coupled with savings in time and convenience makes the automobile almost an equal to the human being and an indispensable product and oil companies know this.

I think the only time were gong to see any type of reduction pertaining to high energy costs is when society begins to crumble and the rate plastic is being used these days reflects that reality or is becoming dangerously close.

Obviously a new formula will have to worked out concerning a countries real need for gas and oil both privately and at the manufacturing level at a realistic price and in Canada's case we should be near the top of the list.