Is Big Oil price-gouging? Is The Pope Catholic?

According to my research, the cost of a litre of gas includes federal/provincial taxes, the cost of the crude oil used to make the gas, the costs of refining and marketing the gas, and what's left over is oil company profit.

Currently, on gas priced at $1.15 a litre, taxes amount to 39 cents, crude 42 cents, refining and marketing 14 cents, leaving about 20 cents profit, or $10 on a 50-litre fill-up.

Big Oil, however, claims its profit margin is only two per cent, or about $1.15 on a fill-up.

Who's bullshitting who?

Says Liberal MP Dan McTeague "A category five hurricane in the U.S. has given rise to a category five fleecing of the consumer at the pump." McTeague also says refiners in Canada have raised prices beyond what he called a "catastrophic level," and he wants the government to impose a temporary freeze on gasoline prices.

The price jumps also brought another call from the Canadian Taxpayers Federation for the feds to lower fuel taxes, which reap an extra $175 million in tax revenues for each 10-cent jump in pump prices.

Peter Huber and Mark Mills, authors of "The Bottomless Well: The Twilight of Fuel", have a theory: The price of oil remains high only because the cost of oil remains so low. The world remains dependent on oil from the Mideast not because the planet is running out of buried hydrocarbons, but because extracting oil from the deserts of the Persian Gulf is so easy and cheap that it's risky to invest capital to extract somewhat more stubborn oil from far larger deposits in Alberta's oil sands.

The market price of oil is hovering up around $70-a-barrel on the spot market. But getting oil to the surface currently costs under $5 a barrel in Saudi Arabia, with the global average cost certainly under $15. And with technology already well in hand, the cost of sucking oil out of the planet we occupy simply will not rise above roughly $30 per barrel for the next 100 years at least.

Oil prices gyrate and occasionally spike - both up and down - not because oil is scarce, but because it's so abundant in places where good government is scarce. Investing $5 billion dollars over five years to build a new tar-sand refinery in Alberta is indeed risky when a second cousin of Osama bin Laden can knock $20 off the price of oil with an idle wave of his hand on any given day in Riyadh.

World demand, especially due to the insatiable demands from China and India to fuel their booming domestic and export markets. At home, their vast populations are becoming major consumers. Abroad, more and more, North Americans are demanding cheaper goods - China and India are where most of those cheaper goods are made. So our demands are helping fuel their oil hunger, as well as our own.

Most analysts blamed the sudden jump in retail gas prices on the surge in wholesale prices in the United States, where numerous refineries in the US South have been shut down by Katrina and a supply shortage looms for the Labour Day weekend, when millions of drivers hit the road and gasoline demand surges.

As well, Katrina not only damaged oil industry infrastructure like pipelines and storage tanks, she devastated oil production in the Gulf Coast and it could take weeks before rigs begin operating normally.

It is now estimated that more than 95 per cent of the daily output of the Gulf Coast, and 88 per cent of its natural gas output, are offline. It's also estimated more than 20% of entire US crude oil production and 10% of refining capacity has been impacted by Hurricane Katrina. To put this into perspective, this is comparable to the entire crude oil and refinery production capacity of Canada.

Gulf Coast refineries process crude for markets across the continent. The storm knocked out or impacted 12 U.S. refineries - with a capacity to process 2.4-million barrels a day - out of 114 with a capacity of 15 million barrels a day. In Canada, there are only 18 refineries with a capacity of 1.9 million barrels a day.

Another major reason for the rapid rise in prices is lack of spare refining capacity. North America's refineries are running flat out at virtually 100 per cent to keep up with our growing economies.

"When you run flat out there is no margin for error," says Roland George, a Calgary-based principal at energy consultancy Purvin & Gertz Inc. Market participants "are outbidding each other for products." That 's another reason prices are soaring.

In fact, while crude oil remains around $69 US, gasoline futures prices for October have jumped nearly 40 per cent this week on the New York Mercantile Exchange.

Gasoline prices in Canada have also gone up quickly because in a global market, the supply shortages in the United States have also created a sudden surge in demand for Canadian crude for U.S. refineries normally supplied by Gulf Coast oil.

That could translate to high gasoline prices well into next year, with  fuel hitting $1.30 a litre.

Even if prices return to normal, doubt remains as to what "normal" will mean, but prices are not expected to drop below 70 or 80 cents a litre.

"Given the scenario in the States, I don't think we can anticipate any significant drop (in the price of gas) post-Labour Day," says Cathy Hay, a senior associate with M.J. Ervin& Associates, a respected Calgary-based consulting firm that tracks Canadian retail fuel prices.

Probably, but industry experts say big price hikes could not be avoided.

Even though Canadian supplies weren't affected, Michael Ervin said prices in this country have to rise in tandem with U.S. prices to avoid a massive outflow of gasoline south of the border.

Because Canadian and U.S. oil and oil-products markets are fully integrated, oil and oil products can move both ways across the border by pipelines or trucks.

"North America is a transparent border when it comes to gasoline," said Jon Hamilton, spokesman for Petro-Canada, one of Canada's top refiners and retailers of gasoline.

"Our wholesale prices have to be competitive with the much larger U.S. market, and that usually works to the advantage of Canadians," Hamilton said. "If our prices were significantly lower, then anyone in the retail gasoline business that can get their hands on trucks, they'd be buying it and taking it south of the border."

That would leave Canada in a shortage. Right now, Canadian refineries are producing all the gasoline needed by Canadian motorists.

However, Jane Savage, president of Canadian Independent Petroleum Marketers Association, blames a lack of competition in part for the sharply higher pump prices.

"At the wholesale level, we have only the majors," said Savage. "Every single (oil) company moved exactly the same . . . keeping in mind, too, that their costs didn't change."

In the typical urban Canadian gasoline station, that gasoline is long gone in no time, say the analysts..

The average station sells 50,000 litres of gasoline per day and replenishes its own tanks every one or two days.

"The reality is that a large number, perhaps the majority of gas stations by now, have higher-priced stock in the tank at the retail sites," says Michael Ervin. "And, of course, with that, dealers and marketers have no choice but to pass along those significantly higher prices."

Sources: Canadian Press, Wall Street Journal, Petro-Canada, The US Energy Dept., The Globe and Mail, National Post, CBC.