Gas below $1 per litre in Medicine Hat

By Taylor Chartrand
December 7, 2018 - 12:48pm Updated: December 7, 2018 - 7:24pm

 

Medicine Hat, AB - For the first time since December 16th, 2017, the average price of gas has dropped below $1 per litre.

Experts say this has much to do with the fact that global crude prices have dropped about 25% in the past 2 months. 

West-Texas Intermediate, which is what our refineries use as their benchmark, was as high as $76 a barrel two months ago. Now, prices are struggling in the $50-$51 per barrel range. 

That accounts for one of the main reasons why we're seeing prices move down from the upper-teens all the way down to, in many instances, below a dollar per litre. 

The second factor is that many gas stations are simply not charging a retail margin. In other words, at about 98 or 99 cents a litre, you're buying gasoline pretty much at the same prices that gas stations are buying from their supplier. 

Senior Petroleum Analyst Dan McTeague with GasBuddy.com says enjoy the low prices while you can.

"It's a real deal for consumers, but it's not likely to last. I'm looking at a possibility of a 2 or 3 cent increase as the result of OPEC getting its act together and gas price futures will rally by about seven-cents a gallon. Good enough for an increase and it wouldn't surprise me to see some stations perhaps after this weekend moving to about $1.10 a litre."

McTeague then explained why local stations are feeling a little more generous.

"They're not refinery owned gas-stations themselves. They don't care about how much they lose selling gasoline. They make it up by getting people to come into their stores to buy a whole pile of other products that have bigger margins."

Even the refinery-owned stations are selling gas at cost.

"Remember, a refinery is buying oil for as little as 15-20 cents a litre, refining it for another 10-12 cents a litre at the most, and then selling it for 60. So, they're picking up a lot of money selling to everyone as refineries."

Because of that, McTeague says they don't mind if they lose 10 or 11 cents a litre. They gain or maintain market shares and that's why, if we look at Costco on Box Springs Road, 97.9 is pretty much on par with the 98 cents a litre mentioned earlier. 

Costco is basically selling gasoline at the price they're buying it, safe in the knowledge that they don't have to worry about losing money. 

McTeague says the recent announcement of Premier Rachel Notley's cut in Alberta oil production has also played a small factor in the gas prices dipping below $1 per litre.

"Well, it is relevant in the sense that the cut back in production is leading to higher yields and value. Perhaps a more appropriate value for Western Canadian Select, but it won't really have a material effect on prices. I sense maybe no more than a penny and that's only because American refineries are going to pay a little bit more for our heavy oil that they so love."

McTeague says the Americans can do more with it and they've made significant investments, not just in the U.S mid-west, but in the U.S Golf-coast as well. But that won't have an impact in terms of the wider-benchmark for oil.

"West-Texas intermediate has gone up about $2 a barrel today with the announcement that OPEC seems to be getting its act together with production cuts and BRENT, which eastern Canada uses and the rest of the world, which is also up nearly $2.5 dollars per barrel."

So, all that means is we could see a jump in prices at the pumps as early as Sunday, but McTeague suspects we're going to be good until Monday or Tuesday. 

"If you're seeing gasoline under $1 per litre in Medicine Hat, I'd strongly recommend you buy it, as next week we'll probably be about 5-10 cents more expensive."

And even though gas prices are down, McTeague says that isn't the case for diesel.

"Gas and diesel two different markets. Gasoline tends to be less expensive in the winter time as demand tends to falter. Whereas diesel is a proxy for economic activity, more importantly, colder weather. Diesel tends to get a lot more demand, not just in terms of actual transportation fuel and the need to fire up generators across north america, but also its a proxy for home heating oil."

"So, if we look at diesel prices, they've been really high now for at least the past year and that's an advance that has really nothing to do with driving, everything to do with vessels on the high-seas. The international maritime's organization has come up with a new convention, a new regulation that will require all vessels are fueled now, rather than bunker oil, they will have to now be fueled up by light or alpha-light sulfur diesel." 

That means diesel prices are expected to remain very high for the next couple of years until supply meets demand. 

"However, the good news for Albertan's is that someone had the decency of mind to build a refinery here in Alberta. Probably the only diesel refinery in the world so, the timing couldn't be better and the jurisdiction that build it, obviously understands the future of the economics."
 

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