Canadian gasoline tops $1 a litre, politicians consider options

August 17, 2005 The average retail price of gasoline in Canada surpassed the psychological barrier of CAN $1 (US$0.84) per litre during the past week, according to the Calgary firm M.J. Ervin & Associates.

According to Ervin, the average price for a litre (.26 gallon) of regular unleaded gasoline is now C$1.04 (US$0.87, €0.71)

Fuel remains under a dollar a litre in some parts of the country, with retailers in Edmonton offering the cheapest prices of all the major cities at 93.3 cents/litre. Drivers in Montreal were paying $1.14/litre, the highest price in the country.

The surging price of crude oil has been cited by Ervin as the reason for the unprecedented prices. Rising demand coupled by ongoing political problems in the Middle East have pushed crude prices to new records at the close of each day of trading. The price at the New York Mercantile Exchange is now averaging over US$65 per barrel, a full $20 a barrel higher than one year ago.

"The biggest factor playing into the current pump price is, without a doubt, the high crude oil prices," according to Ervin's Cathy Hay. But she added, "Layering in on top of that is very strong gasoline demand and a decline in inventories."

Hay's remarks echo the view of many analysts that despite the record prices, there is not yet any sign of major changes in Canadians' driving habits.

"(Canadians) will basically grin and bear it. Well, maybe they won't grin, but they'll bear it." Bank of Montreal economist Doug Porter said. "So far we really haven't seen any response whatsoever on the consumer spending front."

The rising fuel prices have prompted the country's major airlines, Air Canada and WestJet to levy fuel surcharges. Analysts expect the rising fuel costs to trigger a rise in the price of many goods and services as shipping costs rise. Concerns regarding the long-term effect of higher fuel prices are prompting demands by the Canadian Taxpayers Federation, the Canadian Automobile Association and others that the federal and provincial governments either lower or eliminate gasoline taxes.

Nova Scotian Finance Minister Peter Christie is considering such requests, although he emphasized that such steps would not be taken quickly. Nova Scotian New Democrat leader Darrell Dexter said the province's Harmonized Sales Tax should be removed from gasoline, asserting that since there are already both federal and provincial excise taxes on fuel, it is therefore immoral to charge what is effectively a double tax by adding HST (or the Goods and Services Tax and provincial sales taxes outside Atlantic Canada).

However, federal cabinet ministers were quick to reject calls to lower the federal excise tax to exempt GST. Federal Natural Resources Minister John Efford said the price of gasoline was being driven up by demand for crude oil, not taxes.