Canadians are being gouged at the gas pumps, paying in excess of 15 cents a litre more for gasoline than justified by costs and historic petroleum industry profit margins, says a report being released by a think-tank on Thursday.

'After the fall of 2005, there's a marked change and the price differential became mostly on the positive side and grew.'—Hugh Mackenzie, Canadian Centre for Policy Alternatives

The Canadian Centre for Policy Alternatives says it examined gasoline prices before and after Hurricane Katrina in the fall of 2005, and found that the rules of the game for pricing gasoline at the pump had changed overnight.

Hugh Mackenzie, an economist and researcher with the group, said there has always been an "unexplained differential" between what consumers pay at the pump and what they would be paying if the industry tied prices to costs and traditional profit margins.

"Up to the point of August 2005, what you saw was a normal pricing pattern where the unexplained price would fluctuate between the positive and negative," said Mackenzie. "But after the fall of 2005, there's a marked change and the price differential became mostly on the positive side and grew.

"Frankly, I think in Canada there was [a] psychological barrier of $1 a litre, and the industry probably felt there would be real consumer resistance to pushing prices beyond that. What they discovered is that the market will in fact bear going well north of $1 a litre and they took advantage."

Vancouver residents hit hardest: report

The overcharge at the pump ranges from 15 cents a litre in Toronto to as much as 27 cents a litre in Vancouver, the report says.

Liberal MP Dan McTeague is calling on the government to set up an independent body to monitor gasoline price increases in the interests of the consumer.
(CBC)

Mackenzie argues that events such as Katrina and the recent disruptions at oil refineries may give producers an excuse to raise prices, but they cannot justify the hefty increases on the basis of costs.

As evidence for the claim, the report attempts to gauge the relationship between crude oil prices and gasoline prices at the pump. At current exchange rates, it calculates, a $1.25 US-per-barrel increase should result in an increase of one Canadian cent per litre. But in September 2005, when crude oil prices increased by $10 US a barrel, gasoline prices more than doubled, and at one point increased fivefold, above what the crude oil price justified.

Increased demand, upgrades raised costs, refiners say

Tony Macerollo of the Canadian Petroleum Products Institute, which represents major Canadian refiners, said he "categorically rejected" the argument.

While he conceded industry profit margins have increased, he said there were a number of reasons for the current high prices, including increased demand, speculation and the fact many North American oil refineries postponed upgrades in the wake of Katrina.

But Liberal MP Dan McTeague said the report merely confirms what most Canadians instinctively know, that oil companies are reaping profits on the backs of consumers who have no choice but to pay the asking price.

'You have a classic oligopoly and it's important for Ottawa to get its collective head out of the sand because it is responsible for our flawed Competition Act.'—Liberal MP Dan McTeague

The MP says competition in the oil industry is an illusion. The four major distributors in Canada each set the price in the region they control and the others follow, he said.

"You have a classic oligopoly and it's important for Ottawa to get its collective head out of the sand because it is responsible for our flawed Competition Act."

The Competition Bureau has conducted several investigations into allegations of price collusion, but has cleared the industry of wrongdoing.