TSX drops on news of sagging oil, drooping dollar

OIL OIL OIL Canada's most valuable resource.

"Sagging oil, drooping dollar"...geez, the economy
being described as if they are us seniors' body parts....scary.

how does the oil thing work can anymore explain? I'm having trouble understanding how oil is priced and why it is priced more expensive in Canada (the producers) that the US and how that effects the Canadian dollar?

Oil is priced in US dollars. The price you here about is the light sweet crude spot price, or the oil that somebody is willing to pay now in order to get the oil that they use to refine into gasoline. There are many different exchanges that trade commodities, but the NYMEX is used in North America. There is no major price difference between teh NYMEX price and the London Exchange price.

Because oil and every other commoddity is priced in dollars, foreign countries have their oil price affect by two things: the strength of their dollar and the supply/demand.

In the case of Canada, the loony has been appriciating against the dollar, so the increase in the price of oil is that is affected by supply/demand is not as bad. Note though that the current prices are also a reflection of a weaker dollar meaning that everyone has greater purchasing power in dollar terms, pushing prices up. Though in actualality, the changes in currency strength provide only temporary change in real prices as the new price of oil adjusts.

Anyways, once you buy the oil off the market, you need to refine it. Alot, but not all, of gasoline used in Canada is refined in the US. This is due to the fact that US production has fallen leaving excess refining capacity near Canada. Rather than building new plants in Canada, it is much cheaper for companies to use the assets and infrastructure they have. This actually might increase the price of gasoline, but if the loonie is appriciating, then it turns out to be a good thing to have it refined in the US as it would be cheaper to do so rather than using Canadian citizens.

Finally, it comes down to government regulations. This can include emission standards in which the gasoline must have less than a certain amount of pollutants. Stringent pollution standards do increase the price from anywhere between 0-5 cents/liter. However, the biggest factor in all of this is the taxes the government places on gasoline. The US taxes about $.47 per gallon (about $.12/liter). Canada taxes inbetween $.16-.31/liter.

So essentially, your government is responsible for the higher prices. Be thankful you don't live in Europe because they tax the heck out of it!