Gas: how low will it go?

By Geoff Lee

December 8, 2015 12:02 PM

Fas Gas attendent Jasvir Singh is keeping busy with Monday pump prices at just 89.9 cents per litre.

Lloydminster motorists are finding a little more Christmas jingle in their pockets when they fill up at the gas pumps these days.
Prices have been on a steady decline for the past few weeks at local retail stations, as they have been across the country and North America.
They hit a low of 89.9 cents per litre Monday at several retailers, based on online price reports from users posted to the gasbuddy.com website.
The week before, most prices in the Border City were 95.9 cents a litre.
The low prices are time sensitive, however, and are expected to rise again by February, according to a spokesman for Kent Group Ltd., a downstream petroleum refining and marketing consulting company based in London, Ontario.
“February is the season where refineries start to make their changeover to summer fuel and also start to build their inventories in anticipation of the increase in demand,” said Jason Parent, Kent vice-president.
Parent told Source the current drop in gasoline prices is not limited to Alberta or Saskatchewan, where one Regina station was selling gas for 79.9 cents per litre Thursday.
“Really what you’re seeing is the bulk of it is regular seasonal swings in refining margins that we see,” explained Parent.
Generally, the fall and winter months are low demand times for gasoline, coinciding with a drop in refining margins.
“Crude prices have remained low, and refining margins — which were quite high in the summer — have dropped off a bit and that’s showing up at the pump,” Parent said.
He added it’s tough to predict where the bottom per litre will be, but noted prices tend to stay low throughout the winter before starting to rise again beginning in February.
The Kent Group are downstream petroleum consultants that produce a fair bit of in-house data.
A gasoline consumer himself, Parent said he’s sure people are happy about the low prices at this time of year.
However, he added there’s still a lingering frustration that gas prices didn’t drop as much as people thought they should last summer, considering how low crude oil prices were.
He said comparing gasoline and crude oil is an apples and oranges scenario.
“Refined gasoline and crude are two very different commodities and both have their own distinct supply and demand fundamentals,” he explained.
“Gasoline prices were rising at the same time crude prices were dropping and people were very confused by that, but they’re two very distinct commodities.”
Motorists may also be at a loss to explain why gas prices can be 89.9 cents per litre at most retailers in Lloydminster and just 73.4 in Edmonton at several Costco outlets the same day.
The confusion seems understandable given this is the home of the Lloydminster Husky Upgrader and refinery.
“When you’re talking about a single tax jurisdiction like within one province, then the differences you see in the markets are generally just the price dynamics of the retailers who operate in those markets,” said Parent.
He added there could be a five cent to 10 cent per litre difference from another market just 30-km from larger centres, like Edmonton, that has an aggressive pricer like Costco.
When gas prices are on the rise, don’t blame the gas retailer advises Parent, who noted they make a bigger profit when prices are low like they are now.
“They’re not the ones that are driving the price up,” he said.
Parent said gas station owners would prefer to see lower prices rather than higher because of credit card fees.
“Credit card fees are a percentage and so, the higher the price, the higher the cut for the credit card companies,” he said.
“They’re constrained by where refined product prices are at, but the markup at the retail level is very small — you’re talking anywhere from five to 10 cents a litre,” said Parent, who added those are gross margins, not a profit number.

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