How much do gas prices go up this Canada Day Long Weekend?

[Reaper]

Excuse: Whatever comes up when you shake the magic eight ball...

[Log]

Over here it was 109.9 for the longest time (3 or 4 weeks)... Just yesterday it went up to 112.9. I would assume its for the long weekend... After the weekend prices will go down to 110.9.

[tussery]

Pardon my arrogance is that per litre or gallon? I am assuming litre.

[BlackArcher101]

Went up 10c last night in Edmonton, just filled up and paid 107.9 c/L

[Fuzzy McGillicuddy]

Originally Posted by LockedOut

What a shock! Gas went up 5 cents on Tuesday. I guess thunderball wins for now. Weekend is still a few days away.

Yup. Was 1.03 on Monday and 1.08 in north Calgary on Tuesday.

Of course we believe the gas companies when they tell us there is no collusion and no attempt to gouge consumers before a long weekend.

[ken0042]

Originally Posted by tussery

Pardon my arrogance is that per litre or gallon? I am assuming litre.

Yep, it is per litre.

[BlackEleven]

Gas in Montreal is 102.8. The fact it is cheaper in Quebec than Alberta blows my mind ... never seen that before.

[MrMastodonFarm]

104.9 in McMurray this morning, it was 99 a week ago.. suprised it isn't much higher.

[Cube Inmate]

Slightly off-topic, but gas-related and relevant considering the upcoming July 1 tax changes...

Petro-Can claims it averaged about 2% profit on gas retailing in 2005, with 47% going to crude costs, 16% to marketing and refining, and 35% to taxes. So at current prices, for every dollar we give them they're keeping about $0.02 for their shareholders.

When the GST gets knocked down a point, where do you think that extra penny is going to go? Will it actually knock the pump prices down by a penny, will shareholders' profits go up by 50%, will their refining and marketing costs suddenly increase, or some combination of the above? It would be an interesting thing to study, but unfortunately that market is a little too volatile to be able to isolate a variable like that.

Just serves to illustrate ONE of the drawbacks for the consumer when an industry integrates taxes into the posted product price. The same thing is going to happen with transit tickets, vending machines, and other products with all-in pricing (e.g. Saddledome vendors). Profits can go up for the supplier by 1% of revenues, and the consumer doesn't see it.

Time to buy some gas company shares....

[Robbob]

I was at my parents in Okotoks yesterday and I saw on the news that price was going to jump to 108 so I gassed up in the tokes where it was still 99. When I got into the city around 9ish some pumps were already at the 108 mark.

The scary thing is the news report said that they think it might go up to 120 for the long weekend.

[Bobblehead]

Originally Posted by Cube Inmate

Slightly off-topic, but gas-related and relevant considering the upcoming July 1 tax changes...

Petro-Can claims it averaged about 2% profit on gas retailing in 2005, with 47% going to crude costs, 16% to marketing and refining, and 35% to taxes. So at current prices, for every dollar we give them they're keeping about $0.02 for their shareholders.

When the GST gets knocked down a point, where do you think that extra penny is going to go? Will it actually knock the pump prices down by a penny, will shareholders' profits go up by 50%, will their refining and marketing costs suddenly increase, or some combination of the above? It would be an interesting thing to study, but unfortunately that market is a little too volatile to be able to isolate a variable like that.

Just serves to illustrate ONE of the drawbacks for the consumer when an industry integrates taxes into the posted product price. The same thing is going to happen with transit tickets, vending machines, and other products with all-in pricing (e.g. Saddledome vendors). Profits can go up for the supplier by 1% of revenues, and the consumer doesn't see it.

Time to buy some gas company shares....

Well, since the gas market is competitive, as soon as the 1% GST drop kicks in, one competitor will drop his price 1/2% in an attempt to capture a larger share of the market. Others will do the same thing until the same profit margin as currently exists will be reached. If companies could charge 1% more, they would, unless there is collusion.

It doesn't matter if the GST is hidden or not. Lots of taxes are hidden - corporate taxes, property taxes, and so on. Competition is what drives the price down. Make sure all companies play under the same rules, make sure there is no collusion, and price will be minimized by competitive pressures.

[Cube Inmate]

Bobb:

I agree with you that competition should theoretically result in the savings being passed on to the consumer. The price won't jump instantaneously...what I expect to see at the pump on Saturday morning at 12:01 is the same price I see on Friday at 11:59. However, over time I do expect that prices will adjust to maintain profit margins at about the same level. Price volatility will mask the small difference though, so we'll never know for sure.

Since gasoline is a relatively undifferentiated product, and demand is quite inelastic, retailers could profit much more by selling for $1.30 right now if they all agreed that they needed that huge profit margin. That would be considered collusion though, so there is no such agreement. I'm curious, then, why the baseline for profit margin appears to be around 2%? Why is the competitive balance such that a 2% profit is acceptable, and not 1%, 5%, or 25%? Isn't this an implicit agreement within the industry that 2% is the acceptable level? What forces guide this?

I readily admit I haven't studied economics beyond the freshman level, nor have I studied oil company financial statements. THAT's why I think it would be an interesting study to find out how this GST change affects the market...does the average market price quickly adjust to account for the change, or does it takes a little longer for the oil companies to actually adjust their pricing formulas to account for the change?

Alternatively, what if they suddenly notice (in 3 months, for example) that their profits have gone up significantly due to the change? Do they start to adjust, accepting lower prices? Or do they re-invest some of that additional profit in capital improvements, for example, thereby reducing the profit "on paper?"

Just curious...and suspicious. Volatile industries like gas, produce, etc. are an interesting and frustrating phenomenon.

p.s. The point about integrated pricing remains valid. City of Calgary will take its additional 2 cents/transit ticket as profit for now at least. Other examples will be interesting to observe...Tim Horton's coffee prices (at my location, anyhow) are designed to come out to nice round numbers ... $1.40 -> $1.50 (1.498 actually). I wonder what they'll do on Monday, when a price of $1.50 becomes impossible: $1.41 -> 1.4946 while $1.42 -> 1.5052 (with 6%).

[Bobblehead]

Originally Posted by Cube Inmate

...stuff...

Good points all. I agree, and thing you local Tim's better stock up on their pennies .

What sets the profit percentage? A truckload of stuff. There a couple of main ones I can think of; because each gas station sets it own prices, there can be a local monopoly or oligopoly set up. Look at smaller towns - they don't have a large number of stations (and can't support a large number), so there isn't as much competitive pressure, and their gasoline is generally a bit more than it shoudl be otherwise. So they will be getting more than 2%. Another major thing are barriers to entry. Competitive theory states that if someone can enter the market and make a profit, they will, and they will continue to enter the market unti profit reaches 0. However, the cost to enter the market must be considered, and if that cost cannot be recouped in a reasonable timespan, they won't enter the market. So the people already in the market can raise the prices (and profit) just up to the point before it becomes attractive to draw other competitors.

I'm guessing it will take a year to 18 months at least before all the GST change is noticed. Some small businesses on file their GST returns on an annual basis, so they won't see the full effect until their first full year with the new rate.

And I concede your point about the places that include GST in their posted prices. Peter's isn't going to redo their menu because the GST dropped a percent. Then again, I doubt many people are going to adjust their spending habits on small amounts in the short term (would you change your mind about going to Peter's because of 10 cents per dollar?). In the long run though, I'd bet the next price increase by any of these "tax included" places would gradually remove any "windfall" they may experience in the short term.

And although I work in IT now, I am class of '92 B.A. Hons Econ (but there has been 14 years pass by since I had to know quasi-concave analysis in advanced micro-economics).

Anyways, enough rambling. And volatile markets would be nasty to study. I doubt you could trust any short term results.

[Cube Inmate]

Thanks for the insights Bobb! Especially the part about barriers to entry as one of the factors affecting an industry. This is the kind of "invisible hand" factor that you only see after a lot of time spent studying economics.



I'll let you know what my coffee costs on Tuesday!