Vijay Muralidharan, managing director of R Cube Economic Consulting, notes that a critical part of fuel availability at the retail level has a lot to do with fuel blending. He says ethanol, which is required to be mixed with gasoline when filling vehicles, is in dire shortage in Canada. “We import almost everything from the US by rail, and rail shipments have been delayed since March, which means ethanol availability inside BC and Alberta has been limited,” explained Muralidharan. “BC has access to coastal waters so they can import ethanol directly from the US via barges, but unfortunately Alberta doesn’t have that luxury, so we have this issue of fuel availability.” Retail margins on regular unleaded petrol, which are normally around eight cents a litre, have now more than doubled to 20 cents a liter in recent days, supposedly to cover the extra cost. According to Kalibrate, a fuel and retail analytics platform, retailers in Calgary charge 30.4 cents per liter marketing margin compared to 8.3 cents per liter in Toronto. “Retailers in Calgary have to pay out of pocket to transport the ethanol and we don’t know the cost involved,” Muraldihran added. “So it’s hard to measure, but that was the anomaly, and it usually doesn’t get to those levels. Our belief is that there’s some kind of operating cost that created that anomaly, so you see that gap in pricing.” However, some other fuel analysts, including Dan McTeague, suggest that western retailers from Manitoba to B.C. prices are rising and profit margins are much more favorable in the west than in Ontario. Despite the 13 cents per liter natural gas tax put on hold by the Alberta government since early April, prices continue to hover around $1.89 per litre. “It’s a total rip-off from gas rods unwilling to be reasonable,” McTeague tweeted. “Natural gas in Alberta should not be selling for anything more than $1.75 a litre. “There hasn’t been a time in the 28 years I’ve been doing this where retail margins have been this high.” University of Calgary economist Trevor Tombe confirms that profit margins are higher than they have been in recent days or last week, noting that the suspension of the 13-cent gas tax has been passed on to consumers. “So those margins are increasing, but they’re also very volatile. They’re constantly going up and down,” Tombe said. “It’s certainly not fair to conclude that last week, retailers unfairly priced or made part of the gas tax repeal. “It’s too early to know, but it’s certainly been an interesting development in the last few weeks. I mean, just a few days ago, oil was at $110 a barrel, now it’s maybe $15 a barrel lower, so things can change dramatically. That has always been true of energy markets, especially today.”
GAS CONSUMPTION PRODUCTION ACCESS
North American crude oil market analyst Kevin Birn with S&P Global says the global oil market is seeing higher prices because it’s basically a “big bathtub where the drain is running faster than we’re putting stuff in it.” “It’s gotten to a point where, frankly, prices are signaling people to consume less, and that’s what (the market) had to do,” Birn said. “We needed to see that pull back and what we’re seeing in the market right now is some indication that we might see some headwinds to oil demand, weaker economic growth forecasts, things like that. That’s why you’re seeing the price of oil drop a bit right now.” Birn adds that the other side of the equation is the refined products market, a separate market used to refine crude into gasoline, diesel, jet fuel and other consumer products. “Covid has accelerated the timeline in which refineries would go down and delayed the time in which new refineries would return to production,” he said. “So refineries are working as hard as they can to produce as much as they can in North America and keep up, but frankly, we’re consuming a little bit more than we’re producing.”
