There’s the fish that got away story, and then there’s the story that just won’t go away. The first is subject to harmless, outdoorsy embellishment, the second should be subject to a surgical, financial dissection – the Vancouver area pump prices, which at $1.60/L are now the highest in North America which, for a little drama but lacking a tympanic drum roll, I have coined, the Vancouver Vortex.

Is this a localized price storm or will it spread across the country? I don’t see $1.60/L becoming the national benchmark, and the key reasons behind the spike being pointed to are:

Excessive refining margins; Supply questions concerning the operating level of the Burnaby refinery, and; The cloud of uncertainty over the status of the Trans Mountain pipeline, complete with the political haggling going on between B.C. and Alberta, with Prime Minister Justin Trudeau taking on the role of the reluctant referee who’s lost his whistle.

Although I believe there is a degree of Trans Mountain fear or risk factor built into the price, the level is subjective and really anybody’s guess, as are the political mood swings of the triumvirate guiding us down the garden path of prosperity – or maybe drop the prosperity part.

As I see it, the key reason for the high Vancouver area prices over and above the ludicrously high tax structure is the increase in refining margins, that being the spread between the cost of crude and the wholesale price of gasoline excluding the retailers’ margin.

In Vancouver, the refining margin has jumped from 11 cents per litre for the month of April 2017 to 44 cents per litre for April 2018. That’s a 300% increase. Yet, the margins in Montreal and Halifax haven’t changed at all and remain at 18 and 13 cents per litre respectively.

As the wholesale price in Vancouver mirrors the day-to-day movements of those in Seattle, which really means that Vancouver has no control on that portion of the refining margin, then that leaves the cost of crude as the possible reason for the spikes.

This past April, the weighted average crude input costs for B.C., the Prairies, and Ontario was 49 cents per litre yet the Montreal and Halifax costs were at 60 cents per litre. To me, this means that the western Canada and Sarnia hub refiners are using a crude blend with a high level of discounted Western Canadian Select (WCS) crude in their runs, which would account for a significant portion of the dramatic spike in refining margins and pump prices in Vancouver, as well as the prairies where margins are up 60% versus year ago levels.

Montreal and Halifax must process high cost off-shore crude based on Brent prices, which are at a premium to WTI and not discounted.

With the integrated oil companies, those with upstream and downstream operations beginning to publish their Q1 results, it is interesting to note that Imperial Oil’s downstream (refining and marketing) profits were up 36% and Steve Williams, Suncor’s CEO said, “the value of our integrated model was front and center this quarter.” My interpretation of this statement is that what they are both indicating is that there is no money in upstream (exploration and production) with WCS being discounted to death, so we have to make it in the downstream by jacking up refining margins and pump prices.

Until WCS increases in value with a pipeline to tidewater or anywhere outside Alberta, then the high pump prices in Vancouver will be the norm, and maybe not just in Vancouver.