Late in August, I shared an experience with millions ofother Canadians — my first ever $60 gas fill-up. It’s agood thing I didn’t get too excited, though, becausejust a week later, I had my first ever $70 fill-up. And justto keep the good times rolling, a week later I filled upat $1.39 per litre for my first $80 fill-up.

With headlines in the newspapers every day aboutoil prices hitting record-high levels, we are beingencouraged to think that there’s nothing more goingon here than high prices for crude oil, and that theoil companies have no choice but to pass these costincreases along. We’re supposed to throw up our handsand pay.

It is even suggested by some apologists for the oilindustry, who blame the high gas prices on taxes, thatthe real culprit here is the government.

Of course, when we’re asked to accept high crude oilprices as a given, we’re supposed to ignore the factthat the gas we’re pumping into our tanks doesn’tcost one cent more to produce today than it did fiveyears ago, when the pump price was less than 60 centsper litre — a fact that provides the oil industry with awindfall of $1.7 million every day for every dollar theprice of crude goes up.

And it turns out, when you look at the facts, that taxeshave virtually nothing to do with the price increaseswe face. Provincial and federal gasoline taxes are allflat amounts per litre — they don’t go up when crudeprices go up. The federal GST does apply, but thataccounts for only seven per cent of any increase in prices.But is that really the whole story? Is it just crude oilprice increases — helped along a little by the GST — thatare responsible for the astronomical prices we’re facingtoday?

Answering that question is a bit complicated, becausethere are so many moving parts. Gasoline is pricedin Canadian cents per litre; crude oil is priced in U.S.dollars per barrel. So we have to translate betweenbarrels and litres, as well as between Canadian dollarsand U.S. dollars, to get the answer.

At the current exchange rate of 85 U.S. cents to theCanadian dollar, a one dollar (U.S.) increase in theprice of a barrel of crude oil translates to an increaseof 4/5ths of one cent (Cdn) per litre (including GST)at the pump. Or, to look at it from the other end ofthe telescope, a one cent (Cdn) per litre increase atthe pumps (including the GST) translates to a crude oilprice increase of $1.25 (U.S.) per barrel.

Now we’re getting pretty close to the answer. Betweenthe middle of June and the middle of September, crudeoil prices increased by $10 U.S. per barrel. AverageCanadian gasoline prices increased from just under90 cents to more than a dollar. In one week in earlySeptember, the average price in Canada came withina whisker of $1.30 per litre. Using our rule of thumb,the $10 increase in crude oil prices would justify a 7-9cent-per-litre increase (including GST) at the pumps.Not the $1.04 we see every day in major Canadiancities. Not the $1.09 average for the first full week inSeptember. And certainly not the $1.30 the averageprice hit around the Labour Day weekend.

A 7.9-cent increase would have matched the crude oilprice increase. The 15-cent increase we’re now payingis profiteering. And the 40-cent increase we werepaying over the Labour Day weekend was just plaingouging.

In fact, Canadians already know what $100 a barrel oilis like — we were paying a price equivalent to $110 abarrel oil on the Labour Day weekend.

What should the price be? What would it be if weweren’t being gouged by the oil industry? Let’s figureit out. Crude oil at $68 (U.S.) a barrel translates to 50cents per litre (Cdn) at the pump. Normal refining andmarketing margins add 14 cents per litre. Provincialtaxes (Ontario) add 14.7 cents. The federal gasolinetax adds 10 cents per litre, for a total of 88.7 cents perlitre. Add 6.3 cents for the GST, and that gives us 95cents — which is what we should be paying.

The difference doesn’t sound like much. About 10cents. But every penny per litre generates an additional$1.1 million for the industry every day.

And for that period around Labour Day, when thedifference between the price and what would havebeen justified by crude oil prices was much greater — asmuch as 45 cents per litre at the peak — the industrywas knocking down excess profits at a cool $49.5million a day. Not a bad payoff from exploiting fear.

Now, to be fair to the industry, it doesn’t gouge usall the time. Indeed, there is normally a pretty stablerelationship between crude oil prices and prices at thepump. The chart (please see full report) makes the point. It shows theportion of the price of gasoline in Ontario in cents perlitre that could not be explained by crude costs, normalrefining and marketing margins, and taxes, fromJanuary 2005 to mid-September.

The consistency of the pattern over the past ninemonths makes the profit grab in August andSeptember all the more obvious.

So let’s not beat around the bush. What we’ve seenover the past month is nothing short of price-gouging:the Canadian oil industry taking advantage of publicfear prompted by the devastating hurricanes in thesouthern United States, taking far more in increasedprices than was justified by the increase in raw materialcosts.

Of course, no one is going to do anything about this.Just as no one is going to do anything about the factthat the industry is making billions from increases incrude oil prices that have nothing to do with its costsof production. Just as no one is going to do anythingabout the fact that every time the price goes up, theindustry makes another windfall profit from theirinventories of gasoline and heating oil.

But it’s still worth keeping in mind the next time the oilindustry protests its innocence in the face of criticism ofhigh gas prices, or the next time the industry or one ofits apologists points a finger at taxes as the culprit forhigh prices.