A large part of the rising cost of crude oil is due to a weakening American dollar:
Compared to 2003 relative purchasing power, at home, Canadians pay 78% more for fuel while Americans now pay 167% more then in 2003. The same is true in many economies as the American dollar weakens against currencies globally.
Six years ago, when the price at the pump hovered around $.69 cents per litre in Canada, nobody would believe predictions that gas would reach $1/litre, $3/gallon, and beyond in no time. I can still remember laughing at the sight of bumper stickers in protest of "high" $.69/litre gas prices!

Now with crude approaching $125 and gasoline following suit at $1.27/litre, $3.50/gallon people should be prepared for crude oil to reach $225 and beyond over the next 4 years.

Expect gas to double in price by 2012:

Canadian Gas Prices versus Crude Oil:

Since mid 2004, Canadian gas prices have increased a mere 65% while crude has tripled.

US Gas Prices versus Crude Oil:

Since mid 2004, US gas prices have increased by 100% while crude oil has increased 300%

Analysis of oil price versus weakening US Dollar:

The above graph illustrates crude oil as traded in Canadian dollars, indicated in yellow, as compared to retail pump prices in both Canada and the US.

April 2003 Stats:

Crude: $25US - $38 CAD

American gas: $1.25/gal
Canadian gas: $.70/litre

Canadian dollar: $.65 US

2003 American Purchasing power:

In 2003, an American could buy Canadian gas for $.46 US/litre $1.74 US/gallon

April 2008 Stats:

Crude $125 US (400% increase from $25US)
Crude $128 CAD (236% Increase from $38CAD)
American gas $3.40US/gal 172% increase
Canadian gas: $1.25CAD/litre 179% increase

Canadian dollar: $.98 US -a 51% increase from 2003

Purchasing power:
In 2008, an American now pays $1.23US/litre or $4.65US/gallon - a 167% increase from 2003

Purchasing Power Inside Canada:

An American now pay $1.23US/litre or $4.65US/gallon - a 167% increase from 2003
A Canadian now has to pay $1.25/litre for Canadian gas - a 78% increase from 2003

Purchasing Power Inside US:
An American now has to pay $3.40US/gallon for American gas - a 172% increase from 2003
A Canadian now pays $3.47CAD/gallon for American gas -a 95% increase from 2003

At home, Canadians are paying 78% more for fuel while Americans are spending 167% more.

Part of the answer as to why Canadians have been sheltered from sudden price increases is that the US dollar has been loosing value at the same time crude, traded in USD, has been increasing. The sharp gain in the Canadian dollar purchasing power is a whopping 67% improvement in the $.60 dollar of 2003.

Notice the sharp break, indicated by the green shaded area, during mid 2007 when crude increased, breaking through $70/barrel. Since that time, retail gasoline prices ought to be much higher given the retail price has not increased significantly along with crude. This trend applies in both Canada and the US.

The dampened effect on retail price can only be explained by either an increased reliance on domestic oil reserves, and to a lesser degree, a decrease in demand.

It's obvious to me that there must be a lot of domestic oil being pumped into the system, especially since late 2007. What else could keep a cap on the retail price when crude has been rising so sharply. The scary thing is that those reserves can't last long.

With the $.70 Canadian dollar of 5 years ago, crude would now cost $178/barrel Canadian with a resulting price at the gas pump of about $1.80/litre. --That's the difference American's are feeling right now. Because for the most part, the rising price in oil is due to a weakening American dollar.

All this time I've been wondering how inflation in Canada is reportedly at a 14 month low, with banks endlessly driving down interest rates. How can inflation be so low while at the same time, the price of crude oil has doubled in less than two years

I've been imagining how the cost of fuel must be peculating through the supply chain, wondering where and when the cost increase will begin to show. Lately, I've finally started to notice definite price increases.

Now I've heard by word of mouth from friends about the global food crisis with people lining up for rice due to a shortage. I heard this by word of mouth before ever having heard it on the news. With commodities such as rice, the production costs are overwhelmingly driven by the cost of shipping, and the rising cost of crude oil is going to spell disaster.

Now would be a great time to stop day dreaming about global warming and wasting farm land growing corn for ethanol. Lets start building something that will actually work -like lots of clean energy nuclear power plants.

Dynamic Page QR Code

Popular Posts

My LinkedIn PingTag

View My Stats