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Soaring gas prices
Sep 02, 2005

At the start of the War on Iraqi, pundits had predicted we would soon be paying $1 a litre at the pump for gasoline. It took a while, but their prophecy came true. The quagmire in Iraqi led to the upward climb of the price toward $1 and slightly beyond, but the recent destruction caused by Hurricane Katrina really sent the price soaring. 

On Wednesday, the price at the pump in Winnipeg was $1.09 a litre, which represented a five-cents a litre increase from the day before. 

We weren’t hit quite as hard as Eastern Canada where the price in Toronto on Wednesday was $1.20 a litre and $1.13 a litre in Montreal. In the case of Toronto, the overnight jump was 20-cents a litre.

What sent the price well past $1 a litre was the announcement that there had been extensive damage to oil platforms in the Gulf of Mexico because of Hurricane Katrina. According to experts, repairing the damaged pipelines, storage facilities and refineries in the Gulf could take weeks, even months.

A report by canada.com News indicated 12 per cent of American refining capacity is in the Gulf region, and 26 per cent of the United States’ oil production. The report also said the U.S. Coast Guard has information that at least seven offshore rigs are adrift, and the U.S. Energy Department claimed that eight refineries have been shutdown due to hurricane damage.

One can’t help but agree with Liberal MP Dan McTeague that the sudden spike in gas prices has a lot to do with refining capacity and unjustified profits for some who are taking advantage of the misfortune of others.

The price increase also has a lot to do with the panic of commodity traders. It is they who have shot the price of oil to unheard of heights and seem to have readily prepared excuses.

“The markets don’t wait for assessments — they have to anticipate said Larry Goldstein, president of the Petroleum Industry Research Foundation in a Globe and Mail article by Shawn McCarthy. “When you don’t have any cushion of spare capacity and you get a surprise, it gets instantaneously priced and that’s going to pass right through” to the retail level.

Hurricane Katrina caused billions of dollars in damage and officials say the number of killed could be in the hundreds, making it the worst hurricane in U.S. history. It is truly a great calamity and our sympathy has to go out to the victims — the families who have lost loved ones and the people who have lost homes and businesses and have been traumatized by the ferocity of the storm and its aftermath.

It should come as no surprise that nature’s wrath has an effect beyond the confines of its swath of damage. In this connected world, what happens hundreds, even thousands, of kilometres away always has an impact.

With the rise in oil prices and its effect on transportation costs, consumers will be paying more at the store for everyday items such as vegetables and meat. When someone goes to buy a new home, the cost of lumber will have increased and  appliances to fill the home will take a few dollars more out of their pocketbook than had been the case just days earlier.

Industries doing business in far-off locations such as the U.S. will have to pay more for transportation and this extra cost will be reflected in the products they produce.

People will be paying more for natural gas and heating oil, as will businesses and industries.

Overall, the sudden spike in gas and heating fuel prices will have an impact on consumer confidence — rising costs tend to make people a little more cautious when it comes to spending their hard-earned money. If consumers became more cautious, then the economy will in turn slow.

No one is exempt from rising oil costs — not even the producers. It helps no one when the price of fuel jumps.

What can be done?

Some have suggested lowering provincial and federal government taxation at the pump. This could put a few more dollars into your pockets when you pay for gas, but in the long run its only a pittance. 

Ottawa should eliminate the tax upon a tax caused by the GST at the pump, since this is blatantly unfair to consumers. Another tax that could possibly be eliminated is the 1.5-cent levy that was put in place by Ottawa to fight the deficit which no longer exists. In fact, surpluses have skyrocketed.

Others would suggest people turn to more energy-efficient vehicles rather than still popular SUVs, but this will be a consumer choice that becomes more self-evident as a necessity as gas prices soar.

Gas prices could come down with the return to calm following the storm, although the reality is that higher fuel prices are becoming a fact of life. Tweaking here and there with government taxation and increasing refinery capacity could provide some relief, but the one principle of the marketplace is that when consumers come to accept the price of their existence is paying more for a certain item, its nearly impossible for a price to come down regardless of the real value of the item produced.