NAFTA is an heirloom we should hold on to

Like it or not (I go for curtain two), this is regretfully the season of the garage sale – which in my opinion, should be called a “garbage” sale.

In our household, the optics of this event is that of a reverse relay race. The faster I put designer garbage out for sale, the higher the risk of a head-on collision with my wife, bent on returning an item to its rightful resting place in the crawl space from hell! Who knows when that A&W Root Beer glass may be worth something?! “Yes, who knows indeed?” I mutter.

Segue time!

In somewhat the same vein, ‘tis the season when I receive the same calls from all the branches of media asking, with bated breath, “What is going to happen to gas prices this Victoria Day weekend?” They ask this because they say, “The oil companies always jack them up before a long weekend.”

By popular demand, I will attempt to de-haze the fog that most consumers find themselves in when it comes to gasoline and diesel pricing methods in this country, because prices at the pump are stamped, “Made in the USA,” not, “Made in Canada.”

Under NAFTA, refined products can, and do flow back and forth across the 49th parallel, with pump prices changing just as frequently as a result. Much to the possible bewilderment of the always squinting U.S. President Donald Trump, NAFTA is not an economic wall where tank truck drivers have to show a financial passport to cross the border with their loads of diesel or gasoline. This is because the three members have “unfettered” access to each other’s energy markets. This, despite the Keystone XL Pipeline that is now in its ninth-year of justification for its yet-to-be existence – unfetter that red tape why don’t you Mr. President?!

Refineries in the U.S. and Canada operate and compete in an integrated North American market.

The consumer may believe all they want that refiners jack up prices in tandem and are in collusion. Reality bites, because in fact they are in fierce competition.

So let’s look at how pump prices change and why:

·        First let’s take a look at any border state (it makes no difference which one), and let’s say that on a given day wholesale (rack) prices increase south of the border by the equivalent of 2 cents per liter.

·        Then, refiners north of the border increase their prices by about the same amount. If they didn’t, then U.S. buyers would cross the border to purchase the lower priced Canadian fuels, leaving consumers here in short supply.

·        Conversely, when U.S. rack prices fall, so do those in Canada, otherwise Canadian suppliers would head south for cheaper U.S. fuel.

·        So counter to popular media instilled (or is it distilled?) belief, pump prices on long weekends or at any time are not criminally whimsical, but a battle for your business balanced with the economics of refining on both sides of the border.

NAFTA is not an A&W Root Beer mug and something put on the curb in a garage sale – but an heirloom that should be held on to.

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Roger McKnight is the Chief Petroleum Analyst with En-Pro International Inc.
Roger has over 25 years experience in the oil industry, and has held senior marketing management positions responsible for national and international accounts. He is the originator of the card lock concept of marketing on-road diesel that is now the predominant purchase method of diesel in Canada. Roger's knowledge of the oil industry in North America, and pricing structures has resulted in his expertise being sought as a commentator by local, national, and international media. Roger is a regular guest on radio and television programs, and he is quoted regularly in newspapers and magazines across Canada.

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