Gasoline price expert: It’s complicated

Michael Ervin says local pricing influenced by demand

Gasoline prices are always a subject of discussion in and around Wetaskiwin, as it seems the city is always more expensive than every surrounding community. A guest speaker at the Wetaskiwin Regional Chamber of Commerce luncheon Apr. 5 explained why it may or may not be so.

After the regular chamber luncheon began, Kent Group Ltd.’s Michael Ervin, considered an expert on the gasoline industry, gave a presentation titled “Gasoline Retailing Myths and Realities.”

Ervin began his presentation by showing how a litre of gasoline is priced: a number of elements, including different players in the North American retail market, all have a hand in the pie. He pointed out the retail industry doesn’t just include big oil companies anymore, but more often marketers, convenience store chains and big box stores actually own and operate gas stations.

Ervin said the past few years in the retail gas industry have probably been among the most important in its history. He referred to the “refining-marketing divorcement,” meaning some stations don’t even have a relationship with an oil company anymore.

Also, Ervin pointed out that for anyone trying to figure out how gas pricing works, one of the most important parts of the price of a litre of gasoline is the “marketing markup,” the portion of the price a gas station’s operators make their profit on.

He stated refineries produce gasoline and other fuels sold at gas stations, and such refineries in North America run at almost 100 per cent capacity.

Only about 14 per cent of gas stations are price-controlled by traditional oil companies, noted Ervin, who added that the rest are controlled by marketers or dealers. He stated that, over the last 30 years the number of gas stations has dropped but the marketing margin has mostly stayed the same. Taxes on gasoline have also stayed relatively stable, and Ervin pointed out the part of the price that tends to fluctuate is the refiner’s charge, as it’s linked to the commodity price of oil.

Wetaskiwin mayor Tyler Gandam asked why gas price fluctuates from community to community. Ervin answered it usually involves how much business a gas station has, and what it’s marketing markup is. As the markup is a certain price, the number of customers that a gas station has affects how that goal can be reached. If a station has fewer customers, the operator increases the markup to reach the profit they desire.

Ervin also discussed many myths associated with gasoline prices. He pointed out the price of crude oil only really affects the refineries, and crude oil and retail gasoline are two different commodities.

He also stated that suggestions to “build more refineries” illustrate how little is actually known about the facilities. They cost upwards of $10 billion “for a reasonable one,” and with many experts claiming gasoline demand has peaked, most of them don’t see a good business case in building more in North America.

Stu.Salkeld@pipestoneflyer.ca

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