Oil execs to justify pricing to Ottawa as consumers fume over higher gas prices

<p>TORONTO – The federal government is calling oil industry executives to Ottawa to explain their “opaque” pricing structures – an exercise that critics said wouldn’t impress Canadians who are perplexed by sudden gasoline price hikes.</p> <p>Industry Minister Tony Clement said Thursday the Conservative government will ask refiners, distributors and retailers to appear before a parliamentary committee to account for the high cost and volatility of gas in recent weeks.</p> <p>”No-one can understand why (in 2008) when oil per barrel was around $140 or $150 we were paying $1.37 per litre, when this year oil is south of $98 a barrel and yet we’re paying more,” Clement told a news conference outside a Toronto family home.</p> <p>”It’s not transparent enough how these prices are arrived at.”</p> <p>Clement’s call came on the same day oil executives in the U.S. were testifying before a congressional committee about proposals to repeal tax breaks for large oil companies including Exxon Mobil, Shell and BP America.</p> <p>President Barack Obama has been putting increasing pressure on Congress to eliminate these tax breaks as American motorists fume over gas that has hit nearly US$4 a gallon – still well below prices charged in most Canadian cities.</p> <p>The national Canadian price compiled by GasBuddy.com was about $1.34 a litre – equal to more than $5 per U.S. gallon.</p> <p>Clement said that changing tax policy – either a hike on revenue from the oil industry, or lowering taxes at the pump – is not the solution.</p> <p>He dismissed the question of whether Canada would introduce a tax on excess profits in the oil industry as Britain’s government did earlier this year.</p> <p>Clement did not commit to a specific date for the meetings with industry executives nor did he say whether any of the producers or retailers had indicated they’d even be willing to appear before a House of Commons committee.</p> <p>Such ambiguity led critics, including the Official Opposition, to question whether the discussions would be toothless and might come too late.</p> <p>New Democrat MP Jack Harris said inviting industry representatives to speak it Ottawa “doesn’t cut it” for Canadians who feel helpless as rapidly rising food and gas costs eat into their monthly budgets.</p> <p>”On a scale of one to ten, this is probably a number one in terms of the level of response that you could have to what consumers are regarding as a very serious problem. It really does show a lack of concern,” Harris said in Ottawa.</p> <p>Former Liberal member of Parliament and gas price watcher Dan McTeague said he’s worried an appearance at the committee in Ottawa will be a waste of time.</p> <p>”I am concerned as a former parliamentarian that it takes several months before a committee can actually be constituted,” he said after Clement’s announcement.</p> <p>”So while I share the minister’s enthusiasm to have yet another study, my concern is overwhelmingly that it may take too long and there will be further escalation of prices, greater volatility.”</p> <p>McTeague said the government would be better off giving tax rebates to Canadians as federal revenues rise on the back of gas price hikes.</p> <p>Gasoline prices dipped sharply on Thursday, following several spikes earlier in the week. McTeague’s website tommorowsgaspricestoday.com predicted that prices would fall again Friday, by as much as two cents a litre.</p> <p>The average cost of a litre of regular gas fell in most provinces Thursday, as much as 3.8 cents in Ontario and two cents in New Brunswick. That was a retreat from prices that had gone up 6.5 cents a litre on Tuesday in much of Ontario, Montreal and Vancouver, then by another 2.5 cents per litre on Wednesday.</p> <p>The reasons for the rising price of gasoline vary – ranging from higher crude prices on the back of a falling U.S. dollar and Middle Eastern political instability to speculation in wholesale markets.</p> <p>As well, there are fears that refinery closings in the U.S. Gulf states from springtime flooding on the Mississippi River could cut gasoline supplies. In Canada, new consumption taxes on gasoline in Ontario have raised the price in that province since last summer.</p> <p>But recent price swings cannot be justified by fundamentals that have driven prices higher in the past, said David Detomasi, an assistant professor of international business at Queen’s University.</p> <p>He suggested the volatility could be driven largely by a “hangover” effect on financial markets that trade oil, following recent supply fears.</p> <p>”People ride the wave of high prices, and they continue to ride it even after its crashed and there is a hangover effect until someone points out the emperor has no clothes – there really isn’t a supply problem,” he said.</p> <p>The public “naming and shaming” of oil execs, should go over well with Canadians who “have a right to be at least questioning, if not angry,” he added. </p> <p>But explaining the industry’s economics at a Commons committee may not satisfy hard-pressed consumers, many of which want tougher action to stem the rise in fuel costs.</p> <p>Clement indicated he has the power to refer the issue to the Competition Bureau, but said he wants the multi-party committee to hear first from the oil executives.</p> <p>However, past reviews by the federal Competition Bureau have not found evidence of collusion or price fixing in the refinery sector, which has to deal with a North American-wide market and the volatility of energy trading on commodities exchanges.</p> <p>In addition, any government changes to markets that trade oil would be “a vast regulatory undertaking” that would affect all other commodities trading as well, Detomasi said.</p> <p>Governments are also complicit in higher oil prices, as they earn tax revenue on each litre of gas consumed, further reducing the incentive to do anything beyond the discussions, he added. </p> <p>”They have no interest in hammering too hard because that’s a big supply of money for them.”</p> <p>Oil prices have dropped off about 20 per cent in the past two weeks, but started creeping up again Thursday, with the June crude contract 76 cents higher at US$98.97 a barrel.</p> <p>The Canadian Petroleum Products Institute, an organization that represents companies involved in oil refining, distribution and marketing, said Thursday it will fully co-operate with Clement’s request.</p> <p>”We have done this in the past, and we will do it again …CPPI welcomes the opportunity to discuss the factors behind current market volatility,” Peter Boag said in a statement.</p> <p>Gas wholesalers and refiners – who set prices based on estimates of future demand – are some of the executives likely to appear before the parliamentary committee.</p> <p>Wholesale gas prices and refiners’ profit margins, known as “crack spreads,” now sit at multi-year highs as global oil supplies appear to be tight just as peak summer driving season approaches.</p> <p>Some observers have said those margins should decrease going forward, and crude prices should remain flat, but warn that it can take months for lower oil prices to trickle down the supply chain to pump prices.</p> <p>Gas retailers, meanwhile, insist they’re not benefiting from higher prices because it increases credit card costs, the most widely-used payment method at the pump, and erodes profitability.</p> <p>”We welcome the opportunity to tell our story, we provide essential competition at the retail level and we think it’s a good opportunity to look at the broader level of competition at the wholesale level,” said Patricia Anderson, president and CEO at Canadian Independent Petroleum Marketers Association.</p> <p>.</p>