Gas stations forced to raise prices as costs increase
A price hike is likely to happen over the long weekend, said Dan McTeague, senior petroleum analyst for Gas Buddy — that tracks the price of gas.
“At $1.04 cents a litre the retailer isn’t making a lot of money especially if you present them with a credit card,” said McTeague.
Selling for $1.01 or cheaper means you’re selling it for what you’re buying it for without even covering the costs of operating a gas station, he said.
Earlier this week you could get gas in Calgary for 10 cents a litre less than it was selling for in Medicine Hat. That was below cost, said McTeague.
“It is costing gasoline stations in Medicine Hat as much as in Calgary, about 99 cents a litre to buy the fuel. That’s taxes in.”
McTeague calls prices less than 99 cents are “a giveaway.”
“Generally speaking you can’t really turn on your pumps, honour credit cards, which costs two or three cents a litre, unless you are charging a minimum of $1.03,” said McTeague.
Costco’s gas prices are often among the cheapest if you regularly check Gas Buddy. It is paying the same wholesale price for gas as other gas stations, which works out to about 99.5 cents a litre. The quantities it purchases may qualify for a volume discount of about 2 cents a litre, said McTeague. Helping to offset any loss on the price of gas is Costco’s annual membership fee and using a Costco credit card.
You can’t operate on zero margin unless you use gasoline to attract customers and you have another way of recouping costs, such as selling car washes or items in a convenience store, said McTeague.
From the refiner’s point of view there is not much money in the business, said McTeague. Refineries in Edmonton are buying oil for about 40 cents a litre. Transportation and refining adds about another 10 cents a litre bringing it up to 50 cents. The wholesale price is 65 or 67 cents.
For the first time in a long time the price of diesel is actually less than the price of gas.
“Diesel production in Western Canada has increased,” said McTeague. “This time of year you may see diesel challenged a little bit as crops are planted.”
There has also been a drop in demand as a result of the recession, he said. At the same time we are seeing new investments in diesel production in the U.S. midwest and in Canada.
“Diesel’s back on in Western Canada. In Eastern Canada it is not the same thing, diesel demand continues to outstrip supply and that’s why there has been a bit of upward pressure on diesel in the past month and a half or so,” said McTeague.
McTeague calls diesel a “strong proxy” for the state of regional, national, continental and global markets.
“It’s the fuel that gets no respect but it should because it is at the centre of economic activity,” said McTeague.