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Who benefits from soaring gasoline prices?

The price of gasoline continues to soar to new heights and motorists have not finished grimacing at the figures displayed at the pump. Who wins? Who loses there?

To understand this, you have to break down the price of a liter of gasoline, which depends on four elements: the price of crude oil, the cost of refining, distribution and marketing costs and taxes. Let’s start with the part that fuels the most frustration…

Taxes currently represent 28.5% of the sale price. For every liter we consume, we have to pay provincial gas tax (19.2 cents), federal excise tax (10 cents), carbon tax (11.05 cents since April 1) and, of course, the 15% Harmonized Sales Tax (HST) which, unlike other levies, varies by price rather than quantity.

“When the price is higher, you pay more sales tax and governments benefit from it,” summarizes economist Jean-Thomas Bernard, who teaches at the University of Ottawa.

However, government spending is also increasing. The professor points out that the 2.21-cent increase in the carbon tax explains only a very small part of the meteoric rise in the price of gasoline.

A tight global market

The last component of the price at the pump is of course the price of crude oil, set by the world market. Oil prices are currently above $120 a barrel due to tight supplies.

Last week, the European Union took the decision to end 90% of its oil imports from Russia by the end of the year, which should not help the surge in prices .

Dan McTeague, president of Canadians for Affordable Energy observes that global demand remains very strong with the reopening of Beijing and Shanghai and the resumption of travel and travel.

OPEC+, a group of 23 oil-exporting nations that produce around half of all the world’s crude oil, agreed to a slight increase in production quotas on Thursday. For a year, the cartel had not deviated from its strategy of very gradual opening of the floodgates, taking advantage of high prices.

Several specialists argue, however, that this release of 648,000 additional barrels per day announced by OPEC + does not compensate for the losses of Russian oil.

Carol Montreuil acknowledges that speculation also exacerbates oil price spikes. “People see an opportunity in buying futures contracts, anticipating a bigger rise ahead to make a profit by reselling the contracts long before those barrels are even delivered,” he explains. “By doing that, you are impacting demand, which creates upward pressure on prices.”

Energy crisis and superprofits: what political choices?

While the oil groups are swimming in profits, motorists are bleeding at the pumps. What options can public authorities consider to relieve consumers?

After reporting heavy losses in 2020 due to the COVID-19 pandemic and collapsing demand, oil companies and their shareholders are doing better than ever.

Suncor Energy, which extracts oil from tar sands in Alberta and operates Petro-Canada’s network of 1,584 gas bars, posted record net profits in the first quarter of 2022: $2.95 billion, up 259% year-on-year .

First quarter profits are also at a record level at Shell, with $9.13 billion, three times more than the previous year. Imperial, the Canadian subsidiary of the ExxonMobil company, obtained its net profit in the first quarter the highest in more than 30 years: 1.17 billion $ (+ 198% in one year).

However, it is impossible to know the financial results of Irving Oil. The company is not listed on the stock exchange and does not disclose these figures publicly.

The New Brunswick motorist has seen the bill increase by 58.9% over the past year. The price of gasoline also has a significant impact on inflation, since it affects many sectors, from food to everyday goods.

The Higgs government reacted belatedly. He finally decided to donate $1 million to food banks and set up emergency assistance for recipients of social assistance and housing assistance. Single people, including seniors, will be entitled to $225, families will be entitled to $450, in a single payment by the end of June.

Faced with criticism deploring the absence of measures in favor of the working poor or the middle class, the premier argues that the province has limited means.

For the moment, discussions surrounding a possible tax reduction have not been successful. The Liberals proposed a motion calling on the government to scrap the provincial gas tax of 10.87 cents per liter for four months, while the Progressive Conservatives wanted agreement from other parties to call on the federal government to suspend its carbon tax of 11¢ a liter of gasoline for four months. Both motions were neutralized.

Other Jurisdictions, Other Choices

Other provinces have decided to deprive themselves of revenue to provide respite at the pump. As of April 1, Albertans are exempt from the provincial tax that normally applies to gasoline and diesel. This equates to a reduction of 13¢ per litre. The measure will be reviewed quarterly, but has no scheduled end date. The Ontario Parliament passed a 5.7¢ gas tax cut in mid-April. The measure will not come into force until July 1 for a period of 6 months.

Quebec preferred to inject $3.2 billion to offer tax credits of $500 to 6.4 million people, or 94% of adults in the province.

“I prefer the Quebec solution, it does not change the price of gasoline and it sends the signal that we must reduce consumption,” said economist Jean-Thomas Bernard. But his program is far too generous. Almost all households have received the check!”

Other governments have been more reluctant to weaken public finances without affecting the profits of the oil companies. The United Kingdom has thus introduced a new tax of 25% on the profits of large energy groups. The goal is to finance a new aid plan against inflation of 15 billion pounds which notably provides for a check of 1400 euros for the poorest households.

The Hungarian government has instead decided to cap the price of petrol and diesel, which has been stuck at 480 forints per liter (or €1.31) since mid-November. In Spain, a government decree imposes a price reduction at the pump from April to June of 20 euro cents per litre. This is a shared compensation: 15 cents are paid by the government, and 5 cents by the oil companies. In the United States, the House of Representatives has just passed a law allowing the president to freeze by decree the price at the pump, to prevent companies from raising fuel prices to “unreasonably excessive” levels.

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