Do not quibble with the clerk of Pétroles Crevier, Harnois Énergie or Couche-Tard, please. It has nothing to do with the explosion in the price of gasoline. No more than his employer, for that matter.
Posted at 6:30 a.m.
Retailer profit margins have barely budged in years. Over the past month, retailers pocketed 7.3 cents per liter of gasoline, paid an average of $1.96 by motorists. In 2019? 7.1 cents. In 2017? 9.3 cents. One could even say that their profits have declined over the past five years, in proportion to the price at the pump.
In addition, motorists use their credit card more when a full tank costs $100, $125, or even $200, a card that cuts 2% from retailers.
“It’s not easy for retailers, especially since they are suffering from consumer dissatisfaction,” says Sonia Marcotte, CEO of the Association of Quebec Energy Distributors (ADEQ).
Stay patient with the gas station attendants, therefore, especially since the price increase may not be over. Not finished?
I am no diviner, mind you, and my impression runs counter to that of some others. See instead:
“The market has pretty much priced in all the fundamentals that drove the price up at the pump. It shouldn’t go much higher, unless there are speculative effects,” a portfolio manager who has been following the oil sector for years explains to me.
“We expect a moderation in oil prices by the end of 2022, but it depends on what is happening in Europe, with the war in Ukraine,” said Matthieu Arseneau, chief economist. Assistant at National Bank Financial.
Me, I have a doubt. Until January, it was the recovery in post-pandemic demand that drove the price up, essentially. In the fall of 2021, the average price at the pump in Canada was around $1.48, not far from what we saw in 2018 and 2019.
Then came the war, in February, which reminded the world of the importance of Russia in the oil puzzle (second largest producer and exporter in the world). The boycott of Russian supply – in progress and to come – has not only boosted the price of a barrel of crude oil, but also, a new phenomenon, the refining margin.
Russia produces about 10.5 million barrels a day – more than twice Canada’s production – and exports nearly three-quarters of that volume. A large share of these exports are in finished products, such as refined gasoline, mostly shipped to Europe, according to the International Energy Agency.
This pressure on the supply of crude and refined has caused these two main components of the price at the pump to rise simultaneously since February. Never have we seen such a profit margin among refiners, which was US$52 a barrel in May, on average, a sum that is added to the price of crude (US$107 in May).
In Canada, this refining margin represents 47 cents at the pump, double what it was in 2019. We are far from the 7.3 cents for retailers. Taxes are around 53 cents, on average, and the carbon cost, nearly 9 cents.
If this pressure on supply and demand were simply maintained, prices would stop rising. Now, in the short term, the resumption of commercial air travel – your trips to the South and others – will increase demand.
This phenomenon is combined with a crude oil inventory in the United States that is significantly lower than in recent years. In addition, US refineries are using their capacity more than the average for the past four years.
“Strains in fuel markets are mainly attributable to a shortage of global refining capacity, aggravated by sanctions on Russian exports. The rapid draining of the U.S. strategic reserve has provided limited support for motorists,” according to a report from Desjardins Capital Markets.
In short, no improvement in the short term. As for the long-term prospects, it seems to me unlikely that the West will lift their boycott against Russian oil for a few years, even if the war ended.
The reorganization of their energy supply could even force Russia to turn off the tap on its pipelines even further, increasing the pressure on supply.
I’m not a diviner, I told you, and other phenomena could change the situation. First, the attractive prices will increase the production of American shale gas. And it is not certain that the Arab countries, in particular Saudi Arabia, will not end up pumping more of their oil, compensating for the decline in Russian supply.
Finally, of course, a European, and possibly North American, recession would drive down demand for oil and, by extension, the price at the pump. Ironically, this recession would have been caused by the stratospheric prices of oil, precisely, in addition to the war in Ukraine and the rise in interest rates.
So there you have it, it says it all. In the meantime, this pump price boom is both positive and negative for the environment. It encourages consumers to look for more economical vehicles, but in return, it makes stock market investors like Warren Buffett salivate, who took the opportunity to buy oil stocks and pocket juicy dividends.