Pain at the Pump

By Donovan Makus

 

“Nothing is sure in life but death and taxes.”

 

To this quotation, usually attributed to Benjamin Franklin, I would also add “gas price fluctuations.” For those of us who drive, the month of November has not been very kind to our wallets; gas prices that were in the $.90/L range peaked at above $1.20/L. This begs the question: what’s behind these constant gas price fluctuations? Is there some widespread conspiracy, or are there more benign reasons for the pain we feel at the pump?


Living in Alberta, we can see how large the liquid fossil fuel business has become, and how much it fluctuates. While it is easy to ask ourselves why gas is so expensive here when we have large reserves, the answer isn’t quite as simple. Canada is a net exporter of refined petroleum products, like automotive petroleum. We are part of a global integrated market, and when global and regional events affect the oil market, such as wars, blockades, transportation issues, and more, we are affected. The extremely active and violent hurricane season south of the border also played a role in increasing gas prices as refineries were taken off line and the transportation of goods was interrupted.


The U.S. West Texas Intermediate crude price index, which is one of the global oil price indexes, hit a 2 year high of $58.58 on the 23rd of November. Being part of a fairly free market, the wholesale price of gasoline has increased and passed on to us at the pump. Any price jump is complex and involves multiple factors, but in this case, Alberta plays a prominent role in the price jump.


On Thursday morning, November 16th, the Keystone pipeline that runs from here to Texas and the Gulf of Mexico sprang a leak, spilling about 5,000 barrels of oil. As with any leak, there was a pressure drop and emergency shutdown procedures were initiated, stopping the flow of oil. While this is a critical step in preventing environmental damage, it also means that a critical pipeline was taken offline, resulting in refineries in Texas receiving less crude products and, therefore, reducing their output. As economics tells us, reduced output, with the same or more demand, will equal higher prices.


The emergency shutdown of the Keystone pipeline isn’t the only factor affecting the price at the pump–the usual suspects also play a part. The oil market is global and subject to the whims of many different parties. OPEC and Russia are major contributors to the global petroleum market; however, they are threatened by the rise of the American petroleum industry, through such innovations as fracking. Low oil prices hurt their bottom line and they are taking action by restricting their output in an attempt to force prices higher. A recent meeting led to a continuation of their existing supply cut pact, despite rumblings of discontent about this action’s impact on the domestic Russian economy. The end goal is to reduce the global supply glut, leading to higher prices as a result. This action, highly effective in the past (such as when it nearly crippled the West in the 1970s), is not as effective now that American production can increase as a counter force, though it does still have an influence on global oil prices.


While increased American production plays a role in countering price increases, they are also responsible for driving the current prices up. American Thanksgiving is a time of long road trips to indulge in turkey with family, leading to heavier fuel consumption. More Americans continue to travel further distances this year, leading to supply reductions. The American economy has also been growing aggressively, hitting 3% growth and, as a result, consuming more petroleum through increased transportation usage and industry.


Another candidate is the world’s perennial powder keg: the Middle East. November saw aggressive posturing and actions centering on Lebanon and Saudi Arabia’s ongoing campaign in Yemen. The resignation of the Lebanese Prime Minister and an ensuing diplomatic spat between Saudi Arabia and Lebanon led to greater tensions, as did the Saudi interception of a ballistic missile fired towards its capital from Yemen. All these factors lead to tension in the world’s center for oil production, resulting in rising prices.


Ultimately, a complex host of factors leads to rising gas prices, and this time is no different. While minimising fuel usage is difficult for most people who use vehicles almost exclusively to commute, we can still take measures to reduce fuel consumption, which will also help our environment. Carpooling, using public transit, reducing unnecessary trips, and other actions can help us save money at the pump. There are apps that allow you to find the lowest prices in your area, such as Gasbuddy, which can reveal enormous price differences. Now is also a good time to consider looking into the rewards programs offered by various gas stations if you haven’t done so already; this is a means of at least easing the pain bit or maybe reaping some benefit from the price hikes. Predicting the global gas price is difficult, but we can always hope for lower prices in the future.


Leave a Reply