Prices at Yukon gas pumps shot up recently, and analyst Jason Parent says more increases are likely to come.
“There’s a normal seasonal bump in demand and usually we see prices jump accordingly,” said Parent, a senior associate with Calgary-based petroleum specialists, The Kent Group.
“We’re looking at an eight to 10 cent range above what we’re paying now,” he said.
But the price increases don’t mean gas stations are getting rich, he said.
“Generally speaking, in most places (gas stations’), margins are quite thin – about six or seven cents,” he said.
Although in remote, sparsely-populated places, like the Yukon, the margins are a little larger because of greater transportation costs and lower sales volumes, it isn’t much protection against rising prices.
Wholesale oil prices have been creeping up for more than a month now, but it sometimes takes a few weeks before the increase is seen at the pump.
“Retailers are reluctant to follow that cent for cent,” said Parent. “They’re trying to stay competitive and not lose market share but while that’s happening their margins are being squeezed.
“When their margins get squeezed to where they can’t sustain it, then you see larger jumps like that.”
There are several factors that affect the wholesale price.
The price of a barrel of oil is only one among many.
“Obviously crude is an input cost but the refined product is a commodity in and of itself, separate from crude oil, with its own supply and demand fundamentals,” said Parent. “It’s affected by things like supply, refining capacity and how close supply is to that refining capacity wall.”
Like any internationally-traded commodity, there is a speculative aspect to the price as well.
“When you say $106 a barrel, that’s for generally quoting a futures contract for that, which means what it is expected to trade for at the beginning of the next month,” said Parent.
“That’s why when there’s news out of Iran that there may be some sort of supply disruption, you see prices shoot up immediately.
“That’s traders’ expectations of where the price is going to be as a result of that.”
While Parent agreed that speculation is fueling price increases, he said it was difficult to put a dollar figure on it.
However, a study last month by the investment bank Goldman Sachs found that speculation was adding more than $23 to the price of a barrel of oil.
If there were no speculation in oil futures, the price of a barrel of oil might be as low as $74.61. At the time of the study, oil was trading at $108 a barrel.
There has been some attempt to rein in speculation in the energy market.
In 2010, the U.S. congress charged the Commodity Futures Trading Commission to establish limits on oil speculation as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
However, despite calls from numerous U.S. senators, the law has yet to be enforced.
Contact Josh Kerr at firstname.lastname@example.org