Why are we paying what we pay for gas?

Just read an article tonight about the boom going on in Alberta mainly due to the price of oil right now and the vast amount of it in the Oil Sands. This is no surprise. But what is is a comment towards the end of the article.

Canada has long produced more oil than it needs, and most of the excess is piped directly into the U.S.

So if we produce more oil than we need why is our gas so expensive? Saudi's pay 45 cents a gallon. Should our gas not be a lot cheaper than $1.35 a liter?

How would our poor Government survive and then there are those OPEC dudes starving to death....
Seriously...we should not be paying as much as we do but I'll bet we see no relief till election time

Spidubic wrote:

Just read an article tonight about the boom going on in Alberta mainly due to the price of oil right now and the vast amount of it in the Oil Sands. This is no surprise. But what is is a comment towards the end of the article.

Canada has long produced more oil than it needs, and most of the excess is piped directly into the U.S.

So if we produce more oil than we need why is our gas so expensive? Saudi's pay 45 cents a gallon. Should our gas not be a lot cheaper than $1.35 a liter?

Canadian oil companies operate in a free market environment, and like any other seller in a free market, sell their oil to the highest bidder. So that's why we import oil (also, because Alberta Oil is non-conventional and we don't have many refinery's that can process it).

A large percentage of the retail gasoline price we see in Canada is comprised of tax. These tax dollars, in large part, go to paving our roads and limiting the number of toll roads our country has. Hop across the border and take a leisurely drive on a public highway. It can be pretty treacherous.

Middle-Eastern, South American, and South-East Asian nations are developing regions (each area does not contain advanced economies like Canada). So, in order to spur economic growth to get to achieve a level like the one we have here, the regional governments subsidize the price of gasoline. Each country still values the commodity at market value, but the price the consumer sees is much lower thanks to the subsidy (paid for by tax revenue). That's why you see $0.45/gal. gasoline but few paved roads or water treatment plants in these nations.

On the plus side, some developing countries are reducing the subsidized portion of the price of gasoline because of the extremely high price of oil. However, you won't likely see that happen in OPEC member nation's since they do not operate under free market rules.

Because the rich get richer!

Dare I say it?

Perhaps we need a National Energy Policy.

Did I just hear the entire province of Alberta reach for their guns?

if I was selling my oil I would much prefer to sell it for top dollar wouldnt you?

WE get charged approx. $140.00 per barrel of oil. Saudis import grain anywhere between $4-5.00 a bushel
Simply charge them $145.00 per bushel of grain.....that may cause a reaction

tbill wrote:

WE get charged approx. $140.00 per barrel of oil. Saudis import grain anywhere between $4-5.00 a bushel
Simply charge them $145.00 per bushel of grain.....that may cause a reaction

If you charge that much for grain then people will just substitute away from grain to something else (corn, rice, etc.). That's the problem with oil; there isn't much you can substitute away to in the short-run. Engines, plastic bags, the coating on your desktop, your shoes, food packaging, all of it is some derivative (or uses a derivative) of oil.

I, for one, really hope that some alternative engine technology will take hold in North America over the next 5-10 years, such as electricity. At least you can generate electricity from a multitude of different sources (within our borders) which will likely keep electricity prices more stable than gasoline prices.

Here is something to consider: we buy barrels of oil in US$ (that's how it is valued on the open market). Imagine how much more expensive gasoline would be if the loonie was still tracking the greenback at $0.75-$0.80. We'd be seeing Ontario pump prices in excess of $1.60/L. The point being, that even though there are some demand/supply issues with oil, the depreciation of the American dollar has muted some of the increases that we as Canadians are seeing.

its called paranoia, one man says something will kill you and the entire world wants it banned, one man tells you we runnin out of oil and the entire world goes to war for oil, one man says recession comin and the entire stock market crashes, one man tells you about global warming and the entire world thinks its over for us all.

Humans are paranoid freaks and we pay for our own weaknesses

Actually from what I have read it might be the banks who have been hit hard by mortgage problems in the states trying to get some of the money back by speculating on oil which has forced the price up from $60 to $145.

Spidubic wrote:

Actually from what I have read it might be the banks who have been hit hard by mortgage problems in the states trying to get some of the money back by speculating on oil which has forced the price up from $60 to $145.

On the global stage, OPEC believes that speculation in the futures market has disconnected the price of oil from supply/demand fundamentals and claims that the market is "sufficiently supplied with oil". Meanwhile, the Bush administration claims that OPEC member nations are limiting supply to keep prices high, thus claiming that futures prices are reflective of the tight market conditions. It's pretty clear that it's in OPEC's best interest to claim that the market is "sufficiently supplied" while prices are high and that the Bush administration is better served to lobby for more supply to lower prices (i.e. keep the public happy).

The magnitude by which speculative actions are impacting oil prices is yet to be determined. The US Securities and Exchange Commision as of December/07 has launched an investigation in the role speculation has played in pricing commodities. I think the report will be published at some point in the fall, so keep your eyes open.

I am not a futures trader nor a commodity-pricing expert, but I'm not swayed in the belief that speculation has contributed a whole lot in the pricing of commodities. For every "long" there is a "short" in the futures market, so somebody is buying the oil for the price that a futures traded has agreed to supply in the future. In other words, if the public stopped using oil, there would be fewer and fewer buyers willing to pay increasing prices for oil, but since we cannot substitute away from oil to water (or whatever), the buyers know that they can charge what they want and the overwhelming majority of people will pay the price.... at least in the short-run. Once people change their preference for oil prices will come back down. But as I wrote above, it's tough to substitute away from oil so it will take some time.

Here's a recent report published by a CFTC-led task force which is currently reviewing the trading practices of oil futures market participants. Some of the material might be a little dry (and sometimes technical), but if you read the Executive Summary and Concluding Remarks (2 total pages) it frames the report's analysis and findings fairly succinctly.

Also, this is an interim report so the findings are preliminary and incomplete. A full report is set to be published in August.

Cheers!

http://www.cftc.gov/stellent/groups/public/@newsroom/documents/file/itfinterimreportoncrudeoil0708.pdf