Gas prices on the rise
When it comes to prices at the tank, the increase comes quicker than the decrease
Elaine Anselmi
Northern News Services
Wednesday, February 18, 2015
SOMBA K'E/YELLOWKNIFE
The decreasing gas prices consumers have been treated to at the pump since November have turned upward.
Murray McMahon says he's noticed that gas prices have increased quickly, though it took months to see a decline, after the cost of crude began dropping. - Elaine Anselmi/NNSL photo
Crude costs and gas prices
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"It certainly seems when the price of the barrel goes up we see an increase the next day, but when it goes down it takes a lot longer," said Murray McMahon, while filling his truck at the Co-op Gas Bar on Thursday.
"It's not proportional, at least it doesn't seem to be."
After the cost of gas in the city remained largely steady at 138.9 cents per litre since May 2011, it slid to 133.9 cents in November and continued to drop until it settled at 103.9 cents a litre at the beginning of February.
The initial price drop at the tank came nearly six months after the cost of crude fell in July by more than 5 per cent. This month, an increase to 108.9 cents at the pump came shortly after a slight increase in crude. In January the cost of crude was $58.80 per barrel and as of press time it was $60.49.
So why does the price at the pump increase as soon as oil prices are on the rise, yet a decrease took months?
According to Jason Parent, vice-president of MJ Ervin and Associates, a London, Ont. consulting firm that analyzes fuel markets, this trend is not unique.
"Several months is quite a long time (for prices to drop) but then again the pricing of petroleum in that area is prone to that of thing," said Parent.
Both in the city, and in larger southern cities, Parent said price-setting for gasoline is determined by owners and the quick increase and slow decrease relates to how that price affects their margins.
"They're looking at things and seeing the price increase a little bit every day and eventually they're margin gets squeezed to the point where they say 'I can't sustain this anymore' and you see a one-time larger jump in the price to restore that margin," said Parent.
"The other way around, if you have their wholesale pricing drop a little every day, they tend to look at it and they say 'I have a little more margin than I need so I can drop it a little bit along with the wholesale price to try to pick up a little bit of market share.'"
As a result, Parent said there is a tendency for prices to go down in more frequent small steps and jump up less frequently, but in bigger increments. At the Yellowknife Co-op, which alerted its members through social media that prices would increase Monday at the pump if costs continue to rise - board chair Deb Simpson said management has been given the directive to follow gas prices and set their own accordingly.
"We're trying to make money at the Co-op, we're not just doing this out of the goodness of our hearts and yet we give a lot of money back to to our members, so we have to price gas so we're not losing our shirt on it," said Simpson.
"We hope it's not too disconcerting to our membership, we know they were getting used to that low price. We wanted to give people a head's up and then they could go ahead and fill up at the low price."
Coun. Adrian Bell has been vocal about the stagnant gas prices and made a motion at city council for administration to start discussions with retailers on the issue just prior to the cost decline late last year.
"We have to give them credit for lowering prices and we have to expect that they're going to raise them when the underlying price goes up," Bell told Yellowknifer last week.
"I wish they'd let us know what the profit margin is going to be and adjust accordingly."
As a business, Bell said gas station operators are under no obligation to disclose information but he said the transparency would certainly be appreciated. He added that having more retailers in town, creating a more competitive environment, would possibly impact the prices at the pump.
While competitors are few, Simpson said Co-op takes the lead on gas prices and hopes to use that as an advantage to better serve its members.
"We're trying to be the price leaders; when we go down, they go down. When we go up, they probably go up," said Simpson.
"We want to be the price leaders, that's one of our objectives, we want to give our members the best we can give them."
Jeff Kincaid, business development manager for Co-op said it was news to him that the Co-op was a price leader, but said its prices at the pump increase along with its costs.
"We're a co-operative, how long could we operate at a dead loss?" said Kincaid.
In the market, Kincaid said the Co-op is fighting for every customer it can get - adding its competitors are two of the largest in the world.
"We don't live in Alberta; we buy our fuel from Alberta; we don't know why Edmonton has the lowest price in Canada besides they're the capital gas city, in the capital gas province in North America."
Fact file
Crude costs and gas prices
Month-end Gas (cents) Crude (dollars)
July 138.9 114.94
Aug. 138.9 111.37
Sept. 138.9 107.09
Oct. 138.9 97.82
Nov. 133.11 88.80
Dec. 113.11 71.60
Jan. 103.9 58.80
Feb. (current) 108.9 60.49
Source: Natural Resources Canada/Index Mundi
