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OPINION: Bill Walton, Supply and Demand

So you think it is expensive to refuel your car
20170904 refuel walton

We had the good fortune to be invited to the Tee Lake ‘Back to School Smoked Ribs Extravaganza’ on the first day of the Labour Day weekend. The weather was beautiful, although you had an inkling that this was the last day of summer: the water was still warm enough for the kids to swim; the campfire smoke hinted of fall; the beer was cold; the lawn chairs were facing south; the dogs were running loose but generally well-behaved; the fall wasps were looking for sugary sips of sodas or wine; the snacks and appetizers were abundant; our every need met. It was idyllic, almost sybaritic. 

There were comments about the price and availability of beer in Quebec and price of gasoline, which the news people were saying, was going to increase promptly due to the hurricane in Texas. There were inquiries about how the new Smoker worked, answered with explanations in detail of how it did a feast of ribs in three steps, one of which I forget. There were some words of jest about the ability of the volunteer charged with cooking the potatoes but since these were uttered by a ‘Down Easter’ it was hard to tell me son, eh. The jester’s admitting to being a cod-flipper and not used to Rib Smoking, bore some truth when he tried his hand at basting the ribs before the ‘barking’ session.

Good times. However, I kept thinking about the price of gasoline. It is something we Canadians don’t like to talk about but our reliance on American refineries for our gas and diesel surely tells how independent and self-sufficient we are not. For a country of 35 million souls, we are at the mercy of our American neighbours for this much-needed source of energy. The pundits say it is too late to build refineries in Canada, as everyone will be using other sources of energy by 2050. The Return on Investment is simply not there – even for the government to fund and build refineries in oil-rich Alberta. The pundits have been wrong before but I guess we’ll find the storage battery technology to run and warm vehicles in our cold weather by 2050.

Anyway, we all know that the local gas stations will jump their prices at the hint of a southern storm or a long weekend. Although their storage tanks may be full, they tell us the prices are all about supply and demand. Yeah.

I got out my high school primer and looked up the supply and demand formulae. (Oh, a primer is what we used to call a textbook – that was back in BG – before Google). Some smart academics figured out how supply and demand intersected, creating a price point that a company could charge for a product. The trick was to determine what the consumer demand was for a product: in my case, gasoline. Sales experience has provided how much gasoline we in North America use on any given day or long weekend. Production (supply) experience is also a known quantity as the oil refineries know how much of a product they can produce in any 24 hours – be it, unleaded, premium, or diesel fuel.

My primer says that a change in quantity (supply) will drive price up or down: the percentage

in quantity = Q2Q1 (Q2+ Q1)/2 × 100 where Q is the amount of say litres of gas. A change in the price may drive demand up or down as the higher the price the less (a little) we drive: the percentage change in price (P) being P2 P1 (P2+ P1)/2 × 100. Charting these changes we get an intersection of supply and demand that tells the marketer what to charge for a litre of gasoline. It is all so simple.

However, what happens is that the producers can change supply, either by necessity (storms, maintenance repairs) or even at their whim for higher profit. They know that the demand is out there and although consumers go through phases of buying smaller, more efficient cars, even electric vehicles, the demand, because of population growth, will be there despite any change in price. Unless a competitor comes on the market and screws up their supply / demand charts.

I think that was what Pierre was thinking when he tried Petro Canada. Those Texas Boys sure taught him a lesson. For those of you too young to remember, look up Justin’s father and Petro Canada on your device. Anyway, it seems we have to adjust those old formulae with another factor: G for greed or maybe S for Stock Market – something to account for the fluctuations in petroleum product prices when there is no change in supply or demand.

The baked potatoes turned out just fine; the ribs were excellent – even better than advertised; and the price of gasoline in Thorne was 4 cents a litre cheaper than in North Bay.

On another note, The Warriors of Hope Breast Cancer Survivors team came home with a gold medal from the Dragonboat Festival in Barrie last weekend. The competitive season is now over for the Warriors but practice continues . . .