Gas price increase all about surviving: petroleum analyst

Red Deer prices jumped about 10 cents just before Easter

Dan McTeague, GasBuddy.com petroleum analyst

A petroleum analyst says recent gasoline price increases in Alberta are the result of retailers having to “wave the white flag” and stop selling gasoline at a loss.

Dan McTeague, the senior petroleum analyst in Canada for GasBuddy.com, says gas retailers that have been selling gasoline for 98.4 cents per litre, more than the 99.5 cents per litre that they are paying wholesale.

But they can only do that for so long. “Everyone wants to compete with Costco, and they wind up putting themselves into a bit of a pickle.” He believes Costco is selling gasoline below cost. The price of gasoline in Red Deer jumped between eight and 10 cents just prior to Easter.

McTeague said retailers basically shave their retail margins down to a point where even a tiny increase on the wholesale side “puts their noses below the waterline.”

On Tuesday, according to GasBuddy.com, Red Deer gas prices were ranging between a low of 98.9 cents per litre at just a few gas stations, including Costco, to a high of 109.9 cents. GasBuddy.com is a website that provides up-to-date information on retail gas prices in Canada and the United States.

McTeague said selling below the wholesale cost “is a classic loss-leader, and some gas stations sense that they can go that level. Many can, one’s that are corporate-owned find another way to cross-subsidize the loss. But sooner or later someone has to wave the white flag and put prices back up to a reasonable but not excessive retail margin.”

He said eight cents above wholesale is “peanuts” because it costs retailers about two or three cents per litre on credit cards. “You’re now left with five cents on every litre of gas, in order to pay for electricity, wages, insurance, taxes, financing costs etcetera. You can’t run a gas station on zero margin and you can’t run it on three or four cents a litre.”

South of the border, in the United States where there is competition, wholesalers compete against each other to get gas station business. In Canada, McTeague said there’s no competition at the wholesale level so the price is basically the same for all retailers.

Anyone wondering what gasoline prices will be in the months ahead just have to look at one thing — the U.S. midwest refinery production output, he said.

“Every summer it’s alway the same — the U.S. demand for gasoline continues to rise, and if refineries can stay on top of that, we’re fine, but if they can’t then you’re going to see five, 10, 15 and 20 cent a litre increases as there were in 2016, 2015 , 2013, 2012 and 2011, said McTeague.

barr@bprda.wpengine.com