Caught over a barrel

Gasoline prices have the power to change our behaviour: Motorists will drive endlessly to save a few cents on a litre and families are changing their vacation plans in the face of $1 a litre at the pumps. There's a Web site on where to find cheaper gas that gets 200,000 hits a day. To Douglas Porter, deputy chief economist at BMO Nesbitt Burns, this is more than a little strange. He remembers what happened the last time gas prices spiked. That was late last summer, after Hurricane Katrina knocked out most oil-producing and refining operations on the Gulf Coast. "The biggest impact we've seen on consumer confidence in five or six years was Katrina. It had a bigger impact than the tech meltdown, 9/11, and the Iraq war. To me that's unbelievable." Part of the story with the price of gas, Porter said, is that it's the most visible cost in our lives. We can't avoid seeing it every time we leave the house. In his view, it's arguably the most influential price in the country. But it isn't necessarily the biggest one. According to data from Statistics Canada, just 3% of total household expenditures are going to gasoline and other fuels. That compares to food (10.9%), shelter (19.2%), clothing (3.9%), tobacco and alcohol (2.3%), and household furniture and equipment (2.9%).

So why the focus on gasoline? "Canada is a big place," said Bruce Cran, president of the Consumers' Association of Canada. "We drive a long way, we have a lot of urban sprawl, people tend to commute a long way. Gas prices affect us more than other places." Our paranoia that we are being fleeced at the pumps is ironic, given that gasoline is one of the rare commodities whose price isn't officially manipulated. Marketing boards set the prices for poultry and dairy products. The Canadian Radio-television and Telecommunications Commission regulates local phone rates. Pipeline and distribution rates on natural gas are regulated. Even the insurance industry is heavily regulated by the federal and provincial governments. "But gasoline is also the only commodity we see posted on billboards," said John Williamson, president of the Canadian Taxpayers Federation. "It's always in your face. Your income taxes might be in your face this time of year, but not the rest of the time." Although investigations have proven there is no gas price manipulation taking place, the complaints about gouging and manipulation at the pumps remain. And the experts seem to agree they are unlikely to go away any time soon. "A lot of people think they're being gouged," Jason Toews, co-founder of GasBuddy.com, which operates a network of Web sites that track gas prices, said. "They shouldn't blame the gas stations. Crude oil prices are at US$75 a barrel. We're going to see that price reflected at the pumps."
(National Post 060429)


Bush rejects tax on surging oil company profits

President Bush on Friday rejected calls in Congress for a tax on oil company profits, saying the industry should reinvest its recent windfalls in finding and producing more energy. "The temptation in Washington is to tax everything,'' Bush said in an exchange with reporters in the White House Rose Garden. Rather than for the government to reap the benefit from oil company profits driven by the recent surge in global oil prices, "the answer is for there to be strong re-investment,'' he said. "These oil prices are a wakeup call,'' Bush said. "We're dependent on oil. We need to get off oil.'' With gasoline topping US$3 a US gallon (3.78 litres) in some areas, Bush said energy companies should use their increased cash flows to build more natural gas pipeline, expand refineries, explore "in environmentally friendly ways,'' and invest in renewable sources of energy."
(Canadian Press 060428)

I actually agree with Bush on this one. First of all, the profits the oil companies make is used for exploration and development of new O&G sources, which are only getting more expensive to develop as the deposits get smaller, more scarce, more remote and of poorer quality. To take that investment money away from the 'developers' could potentially result in much higher prices down the road. Second, it sets a very dangerous precedent (special tax every corporation when they start rolling in dough?). Third, it wouldn't address the fundamental issue that is resulting in the problem we have today, and it appears Bush finally gets the picture - a bandaid solution won't stop our addiction in any way.

Loonie may flirt with US parity

The Canadian dollar punched to a high not seen in 28 years against the US currency Friday, prompting some leading economists to raise the possibility of parity with the greenback as early as next year. The loonie gained US41 cents during the day, ending at 89.45 cents. At one point, it hit 89.56 cents, its highest level since May 26, 1978. "When you talk to foreign investors, they don't see parity being an unreasonable target at all," said Doug Porter, chief economist with BMO Nesbitt Burns. "It is definitely a possibility. Whether it can be sustained is another question." BMO is forecasting the loonie in the mid 90 cents range by early 2007, with parity not far behind. And although there are opposing views, Porter is not alone in his thinking. Dennis Gartman, an economist and editor of Virginia-based Gartman Letter, also raised the possibility Friday.
(National Post 060429)

This is really hard to believe. Just over five years ago, the loonie was at its worst performance against the greenback ever. I took a trip down to New Orleans in December of 2001 when the exchange rate was 62 cents on the dollar. That trip almost put me in the poorhouse. Now it is almost a deal to buy everything mailorder from the States. How time changes things....