Oil industry colluding on prices

Mr. McTeague suspects oil industry players of colluding so that there is no price competition and consumers suffer.

National Post  | Sep 12, 2008

By Katie Rook

Motorists in the Toronto area were bewildered on Friday to discover gas prices had risen more than 12¢ overnight.

Liberal MP (Pickering-Scarborough East) Dan McTeague was also dismayed by the spike, but not surprised.

On Thursday evening, Mr. McTeague calculated Friday’s price based on a number of factors including the wholesale price of gasoline, regional gasoline distribution patterns, taxes and the strength of the Canadian dollar.

While he is usually able to predict the following day’s prices, he was so troubled by the increase on Thursday night that he delayed reporting it on his Web site.

“The calculation is based on simply the prices set at the stock exchange or the futures market, followed by the industry itself providing to all of its other competitors the price it’s going to charge,” Mr. McTeague said Friday in an interview.

“It’s not hard to figure these numbers out when you’ve been working on these things for such a long time. I always get it right and the fundamentals never change, but they certainly did [Thursday] night. That’s why I couldn’t post at five o’clock. It took me an extra hour and a half because I was in complete denial.”

Information made publicly available by major oil companies suggest approaching price changes, he said.

“Usually, in Toronto, Imperial Oil leads the pack with what the wholesale price is going to be the following day,” he said.

Mr. McTeague suspects oil industry players of colluding so that there is no price competition and consumers suffer.

“They will simply say: ‘For our clients, for our company and our retail chain, distributors and wholesalers this is the following price.’

“There are a lot of middle men wholesalers who will see that and work it with the other companies and say, ‘This is the wholesale price for Esso, what should our wholesale price be?’ They’ll just follow suit there is never any competition at wholesale.”

Consumers are justified in their cynicism about an apparently ceaseless increase of pump prices, particularly when the price of gasoline increases significantly while the price of diesel does not, said Richard McKnight, a senior petroleum analyst with En-Pro International Inc.

Mr. McKnight believes Friday’s gas price increase is a reflection of gouging. Based on the figures that would typically indicate gasoline price changes, Mr. McKnight is concerned that the prices have been inflated in anticipation of the effects of Hurricane Ike, rather than the actual impact of the storm.

Gas prices in eastern Canada, including parts of Ontario, Quebec and the Maritimes are influenced by prices in the U.S. northeast and Chicago markets that are supplied with a refined product containing gasoline, diesel, furnace oil and jet fuel via pipelines from Houston and New Orleans, he said.

At the time of Thursday’s gasoline price increase, those pipelines had not been damaged.

“My working theory is [the oil industry is] just taking advantage of a highly-publicized, very vicious storm and they’re relying on the public’s awareness of the storm to accept these high prices for gasoline. It is completely and utterly unjustified,” he said.

“I have often been asked to comment on gouging or collusion. I’ve tried to avoid it, but in this case, this is absolute gouging. I wouldn’t mind the fact that gasoline would jump say on Monday or Tuesday, once we assess the damage to the supply infrastructure including refining and pipeline.

He suggested that if the oil companies “were following the rules of the game,” the price of gasoline would have only gone up 2.5¢ a litre Friday morning.

Some analysts blamed the spike on an oil supply already depleted by Hurricane Gustav two weeks ago.