Unjustified increases cited
February 4, 2013
by Fleet Management staff
QUEBEC CITY—CAA-Quebec’s daily observations of gasoline prices confirm what is already known: pump prices, as well as retail margins and crude oil prices, all rose in 2012 from 2011. And as if this were not enough, the Greater Montreal area saw numerous unjustified price hikes in advance of weekends and holiday periods.
Retail margins on the rise
In Quebec, a litre of gasoline sold on average for 5 percent more in 2012 than in 2011. In the Montreal area, the average price of a litre of gasoline rose to 137.3 cents, compared with 134.7 cents in the Quebec City area and 135.6 cents in Sherbrooke. And although retailers’ margins rose to a lesser degree in Montreal and Quebec City, the situation was different in Sherbrooke, where the retail margin rose sharply, to a level 19 percent higher than in 2011. The retail margin in Sherbrooke climbed from 5.7 cents for each litre of gasoline sold in 2011 to 6.8 cents per litre in 2012. In Montreal, a two percent rise in their margin enabled retailers to reap average gross profits of 5.9 cents per litre of gasoline, while in Quebec City the increase was 7 percent, resulting in a retail margin of 6.4 cents a litre. The average margin across the province was 5.6 cents a litre.
An economic law turned on its head
“The increase in the retail margin is certainly not good news for motorists, especially in large markets with high sales volumes,” notes Sophie Gagnon, CAA-Quebec’s assistant vice-president, public and government relations. “Once again, the industry should explain why service outlets in the smaller municipalities can get by with much lower retail margins than those in the major urban areas, even though there are fewer of them and they sell much less gasoline. This is true, for example, in Victoriaville and Princeville, in the Centre-du-Québec region, where the margin is 3.2 cents per litre, Lachute in the Laurentians, where it is 3.5 cents a litre, and Saint-Lin in Lanaudière, where it is 3.8 cents a litre. Meanwhile, the margin is nearly twice as high in Quebec City and Montreal, a situation incompatible with the concept of supply and demand.”
Holidays are beneficial – for the industry!
Of the three markets analyzed most closely, Montreal is where a more careful look is needed with respect to price hikes on Fridays and just before holiday periods. Twelve price increases at the pump were noted on Fridays in Montreal, compared with only one in Quebec City and two in Sherbrooke. And of these 12 increases, eight appear unjustified. Moreover, just before the year’s eight long weekends or holiday periods, five increases occurred in Montreal. Of these five, three had no justification, taking into account the movements in market indicators and the retail margins applied previously, whereas Quebec City and Sherbrooke saw no anomalies of this sort.
“It is very disturbing to see so many unjustified increases,” Gagnon laments. “When motorists take advantage of the weekend to escape to visit family or friends, the industry makes sure it gets the maximum profit from each litre of gasoline sold by imposing increases with no basis. And what can you say about unjustified increases just before holidays?”
In contrast, the price at the pump in Sherbrooke did not budge over a period of 49 consecutive working days. From January 12 to March 20, gasoline sold at 134.4 cents per litre, with the retail margin varying between 8.4 cents a litre and 2 cents/litre. Price stability can be very misleading for motorists, because oil indicators fluctuate constantly, and the same should apply to the price at the pump to give consumers a realistic price that takes account of the real indicators. Not adjusting prices at the pump when the context justifies it also amounts to taking advantage of consumers. In Sherbrooke, there were at least three other periods of stability in 2012 lasting no fewer than 21 working days. In Quebec City, four instances of stability were observed, two of them lasting 22 consecutive days. No similar situation was observed in Montreal.
Another piece of bad news: a tax increase
Montreal remains the city where the rate of taxation on the average price of a litre of regular gasoline is the highest among large cities in the Canadian provinces and territories. Taxes add 36 percent to the price of gasoline in Montreal, compared with a Canadian average of 31 percent. And on April 1, 2013, the provincial fuel tax will rise by one cent a litre for the fourth year in a row.
Price trend in 2013
The American Automobile Association (AAA) notes that, with the national price in 2012 averaging US$3.60 a gallon, equivalent to 95 cents a litre in Canada, gasoline has never been as expensive in the US. But with gas prices having been especially high in the last few years, AAA analysts do not foresee any significant increase during the current year and say prices could even go lower than in 2012. Weaker demand and higher U.S. oil production seem to be the two main factors for the expected price stability or slight decrease.