Gas and diesel fuel pricing explained

Photo by Flickr Creative Commons

With the price of gasoline continuing to be a major bone of contention for many local area motorists, we took the retail margin issue, to the senior analyst with the consumer website, Gas Buddy-dot-com.

Dan McTeague says, there’s little doubt, that even after factoring into the discussion the recent drop Fort St. John posted prices are still very much on the high side.

However, he also cautions, there are legitimate business arguments for that, which consumers often do not consider and a key one, goes to inventory liquidation.

“15 cents a litre after the costs of buying the gasoline, after paying for its transportation. That appears to be the delivered cost to every gas station in your region assuming three cents to transport it from the pipeline or from Prince George if that’s where they’re picking the product up from. The fact is you probably a bit of leeway but I’m giving them three cents which is more than generous.

Wholesale prices for gasoline being more than 70 cents a litre with the provincial and federal taxes in plus the GST delivered price to most stations they can pick up for about a buck six today. The difference is what’s called the retail margin. 15 cents a litre retail margins today is on the high side but given retailers may have, and continue to hold gasoline they purchased several weeks ago when the prices were about 8-10 cents higher, you can see why dropping from 1.29, to 1.23, to 1.21 does in effect happen, but it takes a lot longer as gas stations can’t find themselves in a position where they’re liquidating their product at lower prices. They’ll lose money and if they lose too much money they’ll be out of business.”

As for diesel fuel it’s not often one gets El Nino feedback when engaging an energy analyst in a discussion about the topic, however, McTeague said the weather did surface as an issue, when we talked to him about local area diesel prices, which are running about ten cents lower than gasoline prices.

“Diesel is going to be a very interesting product this year. We’ve always seen it rise at this time of year unless they’re clearing the inventory to make way for the winter demand. Diesel tends to go up in both fall and spring both for harvest and for planting. It’s also a proxy to home heating fuel in many parts of North America. Diesel has been in much greater supply recently throughout the US midwest and throughout Canada. At the same time if the El Nino prediction on the weather is correct it means that there could be a glut of diesel. For now it looks like that is going to be a lot better than we’ve seen in the past few years although anything can change within a week.

We got another surprise, when we asked Dan for a fall/winter crude oil price forecast…and he took us to the supermarket.

“Canadian oil is always prices higher because we have to price all of our oil in US terms, and because we can’t get all of our Canadian oil, particularly heavy oil to other markets it’s discounted by as much as 13-15 dollars a barrel today. There’s no doubt that oil prices are about 65-70 per cent cheaper this year than they were at this time last year.

We have to buy all of our commodities, even our agriculture in US terms. I bring up agriculture because I see food prices have gone up three and a half, three point six per cent since this time last year. While everyone talks about why it might have happened, the two things they tend to neglect is a lack of competition among grocery chains, as well as the Canadian dollar playing no small part. A weak Canadian dollar may sound great for manufacturing but for consumers not such a good thing especially if you happen to be a Canadian consumer.”