Comparing Oil Prices to Gasoline Prices

Eclectecon touches on one of my biggest "media reporting on Economics" pet peeves in Gasoline Prices are NOT Proportional to Oil Prices:

Several weeks ago, a friend asked me why, when oil prices had fallen to a third of what they were a year ago, gasoline prices had fallen by less than half of what they were then. And the other day, I heard some talking-head mediot* ask,

"So tell me this: if oil has fallen from $140/barrel to $50, why have gasoline prices only fallen from $1.29/litre to $.79/litre? Huh?"...

...In other words, about 55 cents of the price of a litre of gasoline is due to other costs that do not vary with the price of oil. These costs include, of course, taxes, but they also include the bulk of labour and capital costs as well. These costs cannot be altered much as the price of oil changes, and hence their influence on the price gasoline cannot change much when oil prices change.

The situation is misleading enough if you are in the United States. But it is doubly so if you are in Canada (which both of us are): There's also one other major factor the media always leaves out - exchange rates. The oil prices in the news are, almost always, presented in U.S. dollars. But gasoline prices are reported in Canadian dollars.

When oil was $140 US/barrel, the Canadian dollar was at or above parity, so a barrel of oil was around $135-140 Cdn/barrel.

Today Nymex crude futures are at $50.24 US/barrel. At today's exchange rates that equals around $66.13 Cdn/barrel as the Canadian dollar has fallen (largely because of falling oil prices).

A Canadian saying oil is at $50 without stating that they are talking about U.S. dollars is hugely misleading when comparing to an item priced in Canadian dollars.