TORONTO -- Canadian motorists will remain defenseless against wild gasoline price hikes until watchdogs are set up with the power to discipline retailers for unexplained spikes, said the author of a study accusing the Canadian petroleum industry of gouging.
Gasoline that sells for more than $1 per liter across Canada, and which jumped by 10 cents again Thursday in parts of Ontario and elsewhere, has more to do with the industry playing on consumer fears of a shortage than any real market forces, the Canadian Centre for Policy Alternatives said in a report [image-nocss] released Thursday, reported the Canadian Press.
Hugh Mackenzie, an independent economic consultant and the Toronto-based author of the study, said there is no regulator in place to protect against gouging, leaving Canadian drivers vulnerable to whatever stations want to charge. The very fact that we do not have any agency that is allowed to discipline them for gouging is an invitation to do it, he said.
If there were an agency that had the ability to look at these short-term spikes and had the authority to order them rolled back, it would make it much less tempting for the industry to [raise prices unfairly] in the first place.
The federal Competition Bureau of Canada, which has investigated the gasoline industry five times since 1990, takes months to complete a probelong after short-term price increases occur and companies are able to build a defense, Mackenzie said.
Each bureau investigation found no evidence of gasoline price-fixing. But the bureau was examining the difficult-to-prove allegation of collusionmore than one station conspiring to raise prices artificiallyas opposed to gouging, whereby a station might raise prices, independently or not, based on consumer paranoia about shortages.
Price-gouging per se is not something that is illegal under the [Competition] Act, said Josee Villeneuve, the bureau's assistant deputy commissioner. If the profiteering is a result of an agreement between competitors, that is something we would look at. But having profits is not something that is illegal under the act.
Since oil companies know there is little chance of repercussions, they are at liberty to raise prices at a moment's notice, even if the price increase far outweighs what is warranted under market conditions, Mackenzie said.
The studya three-page report Mackenzie prepared over a day, doing no-brainer arithmeticsuggests that for every $10 U.S. increase in the price of a barrel of crude oil, gasoline prices should only go up between seven and nine cents Canadian per liter, including GST, which would account for 7% of any increase.
Under that logic, average gasoline prices during the Labor Day weekend, which jumped by about 40 cents a liter, should have increased by no more than nine centssomething Mackenzie calls just plain gouging.
Not surprisingly, the refining and retailing industry disagreed, noting that the study does not take into account North American wholesale markets that were impacted by the Gulf Coast devastation wrought by hurricanes Katrina and Rita. Wholesale gas prices increased in the wake of the impact of hurricanes on refineries in the southern United States because the market operates on a continental basis, said John Skowronski, a director with the Canadian Petroleum Products Institute.
We're in a market-based economy where supply and demand typically determine the value of our commodities, especially for finished products such as gasoline, which trade on a North American basis, he said.
Last Thursday, gasoline prices in parts of Ontario and elsewhere rose up to 10 cents a liter in part because of concerns about the state of the North American refinery industry. Some markets in Northern Ontario, for example, were selling gasoline at more than $1.25 a liter.
Meanwhile, retail prices of jet fuel and diesel, which affect the transportation and farming industries, are poised to spike further. Dan McTeague, a federal Liberal MP and longtime gasoline-price crusader, said a North American market does not explain why wholesale prices were five cents cheaper in the United States on Thursday than they were in Toronto, where there are no refineries.
He said Canadians are suffering from weak competition that allows three major oil industry playersPetro-Canada, Imperial Oil and Shell Canadato establish nearly identical wholesale prices while squeezing out independent competitors.
McTeague also said what is needed is an independent monitor is needed to provide independent, objective analysis of oil industry pricing. He noted that the federal and provincial governments and the oil industry itself uses one company to calculate benchmark pricesCalgary, Alberta-based MJ Ervin & Associatesthat is treated as gospel without being compared against an alternative.
When it comes to the industry, we have a monopoly of thought, McTeague said.
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