Montreal: Stand by for gas-price hike

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Thursday 10 August 2000

Stand by for gas-price hike

80 to 82 cents at pumps forecast CATHERINE SOLYOM The Gazette

The price of crude oil jumped more than a dollar yesterday, leading analysts to wonder not if, but when prices will begin to soar at Montreal pumps.

"It's dangerous to look just at a day but over the last two weeks, crude went from $26 to $30 a barrel," said Carol Montreuil, vice-president of the Canadian Petroleum Products Institute.

"And all indicators show that prices will continue to rise. Reserves are down, demand is greater than supply. Prices will go up. That's economics 101. I wouldn't be surprised to see 80 to 82 cent prices at the pumps."

The price of crude shot up on the New York Exchange when the American Petroleum Exchange and the U.S. Department of Energy showed reserves for August at their lowest since 1976 - at the peak of the oil crisis.

No government in Canada publishes a similar inventory but Montreuil said Canada tends to follow trends in the U.S. very closely.

He said we might see a jump in wholesale gasoline prices in Montreal in the next few days. The rule of thumb is that every dollar on a barrel of oil translates to one cent on a litre.

OPEC countries are producing less than the demand for oil, said Montreuil. That's why prices went up in the spring and why they have gone down since March when OPEC began to increase its production by 2.5 million barrels a day. Prices in Montreal fell from around 85 cents a litre to 77 cents.

Too Little Too Late

But it has been too little too late, as the North American economy continues to boom - accounting for an increase of one per cent in world demand- and summer is the season to drive.

OPEC promised to stabilize the supply and therefore the price of oil at $25 a barrel, but, said Andrew Pelletier, spokesman for Petro-Canada, they are less than reliable.

"What OPEC will tell you, and what they do is different. But that's what we live with all the time," Pelletier said.

He couldn't predict how the jump in oil prices would affect prices at PetroCanada's pumps. "We appreciate people's frustration, but there's not a lot we can do. The market is the market. Check with your investment broker."

Still, Pelletier tried to put things in perspective. "We were paying about the same price for oil in 1973," he said. "Everything else has gone up, so it's cheap gasoline."

What has changed, he said, was the level of taxation on fuel. While some have pointed to price gouging by the big oil companies, Pelletier blames provincial taxes.

"Look at the differences across the country. Gas is 78 cents a litre here, about 72 cents in Ontario, and 60 cents in Alberta. That's tax."

A breakdown of today's gas prices shows taxes make up 50 per cent. Provincial and federal excise taxes are fixed at 25 cents, regardless of the overall price, plus 1.5 cents for a Montreal transport subsidy. Then there is the GST and the PST, as well as negligible transport costs and the profit margin. In Quebec the retailer typically takes 5 to 6 cents off every litre of gas.

All that on top of the wholesale price for crude oil - about 28 to 30 cents - which is the same, sometimes even less, than in the U.S. "Yet we pay 18 or 19 cents more per litre than our neighbours to the south," Montreuil said.

Lower Stocks

News of crude-oil reserves in the U.S. revealed dwindling reserves of heating oil, triggering fears of shortages over the winter months. Last year, shortages in furnace fuels led to huge price increases in the U.S. Stocks today stand at nearly 30 million barrels below this time last year.

The Clinton administration is setting up a 2-million-barrel heating oil reserve in preparation for winter.

Here in Canada, oil-refinery production is shifting away from gasoline and towards heating oil, but we are playing catch-up, Montreuil said - reserves are at record lows here, too.

So if we have a mild winter, we should see mild prices, but "if we have a cold autumn or an early winter, it would be dramatic. And it would reflect in the price of heating oil, which could rise by up to 10 cents a litre."

Petro-Canada general manager Rene Lemire said that in terms of both gasoline and heating oil, there was nothing to worry about in terms of actual shortages. The 1970s anxiety of running out of gas has gone, despite reserves being at 1976 levels.

"We know there is enough oil to support the demand," he said, "so there's a level of anxiety that has been removed. Mind you when you wake up and go to fill your car and prices went up 5 to 8 cents overnight, we can understand that that's a big thing to the consumer."

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-- Martin Thompson (mthom1927@aol.com), August 10, 2000


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