CAA-Quebec review of 2010 gasoline prices: inconsistent retail margins

QUEBEC, Feb. 4 /CNW Telbec/ - Looking back at gasoline prices across Quebec during 2010, the year was highlighted by a marked drop in retail margins in several regions, yet the opposite situation prevailed in Montreal and Quebec City, where margins remained equal to or greater than the provincial average of 5.1 cents/litre. CAA-Quebec considers this situation to be abnormal, among other reasons because it shows that the two largest markets in the province are not reflecting the law of supply and demand.

Presented below, for the fourth year in a row, are the main observations stemming from CAA-Quebec's annual review of gas price fluctuations.

Some regions more privileged than others? CAA-Quebec's observations highlight certain anomalies in some locations, for example in Saguenay-Lac-Saint-Jean, where the average retail margin decreased to 4.6 cents/litre in 2010 from 7.3 cents/litre in 2009 - a drop of 37%. "CAA-Quebec knows full well that in regions with lower sales volumes and higher operating costs, there should necessarily be a higher retail margin, so we should be asking questions about the magnitude of that decrease," says Sophie Gagnon, the organization's Senior Director of Public and Government Relations. In the Mauricie region, although the drop was less pronounced, the margin was 3 cents/litre in 2010, whereas it had stood at 4.2 cents/litre in 2009 (a 29% decrease). In Estrie, the margin shrank by approximately 12%, to 3.7 cents/litre in 2010. In these two regions as well, there is reason to question the market logic, because in 2006 and previous years, their retail margins were comparable to that recorded in Quebec City.

Elsewhere, the regions of Centre-du-Québec (2.2 cents/litre), Laurentides (3.3 cents/litre) and Lanaudière (4.2 cents/litre) retained their reputation as the markets where the retail margin is traditionally much slimmer than the provincial average, owing to higher sales volumes and more intense competition - proof that it is possible, given these conditions, to maintain lower margins.

Lower margins, of course, refer to pump prices that are more reflective of market indicators, to the advantage of consumers.

Meanwhile, in Montreal and Quebec City… If it is possible for a market to thrive with lower retail margins, why is that logic contradicted in Quebec City and Montreal? In Quebec City, the retail margin averaged 5.7 cents/litre in 2010, while in Montreal, the average was 5 cents/litre. In other words, retailers and independents in the province's two largest markets are helping themselves to higher retail margins as compared with several less populous regions of Quebec, whereas motorists should, on the contrary, expect to benefit from the effects of the stronger competition that typifies large markets.

"Although the margin dropped very slightly in Montreal compared with 2009, it remains inexplicably high compared to certain other markets in Quebec," Ms. Gagnon emphasizes. "And the picture in Quebec City isn't much rosier - far from it, in fact, since the retail margin actually increased slightly there. Something clearly needs to be done about the situation, because as things stand now, motorists in Quebec City and Montreal are getting the short end of the stick."

Government action needed. Given the fact that retail margins observed in Quebec's various regions are completely inconsistent with the basic principles of the gasoline market, CAA-Quebec considers it appropriate for the Government of Quebec to take action on the issue, so as to conduct more in-depth analysis of the situation and hear explanations from the industry. It is high time clear answers were given.

A 40-day-long example … It is worth recalling the situation that prevailed immediately before the Holiday period, when retailers in the Quebec City region maintained an average retail margin of 8 cents/litre - 3 cents/litre greater than the provincial average - for more than 40 days. When CAA-Quebec spoke out against the situation, industry representatives were unable to provide any credible explanation. In the opinion of the Canadian Petroleum Products Institute (CPPI), CAA-Quebec's analysis did not cover a sufficiently long period of time, and when considered on an annual basis, retailers' margins compared well with those of their counterparts in other regions. "Where is this alleged comparability? Ask motorists in Quebec City if they think 40 days is too short a period when they are paying, on average, 3 cents too much for every litre of gasoline," Ms. Gagnon counters.

CAA-Quebec believes that in certain markets, the industry is quite simply disregarding the need for retailers to more closely follow fluctuations in the daily cost-of-acquisition indicator and set a price that properly reflects market movements - and to set that price daily.

Some statistics based on CAA-Quebec's observations

Pump price vs. realistic price. In Montreal, the pump price was higher than the realistic price calculated daily by CAA-Quebec on 106 out of 248 business days; i.e., 43% of the time. In Quebec City, the pump price was higher on 127 days, or 51% of the time, while in Sherbrooke, a higher pump price prevailed on 143.5 out of 248 business days (58% of the time). These are interesting figures that remind consumers of the usefulness of CAA-Quebec's Gasoline Watch tool, which they can consult to find out the daily realistic price in their region.

Pump price. In 2010, the average price of a litre of regular gasoline stood at 108.3 cents/litre in Montreal, compared with 98.8 cents/litre in 2009. In Quebec City, it was 106.6 cents/litre in 2010 vs. 97.3 cents/litre the previous year. In Sherbrooke, the average price was 105.6 cents/litre, whereas it had been 97 cents/litre in 2009.

Highest price vs. lowest price. In Montreal, the highest observed pump price was 121.9 cents/litre, on December 23. In Quebec City, the priced peaked at 119.4 cents/litre between December 2 and 6, while in Sherbrooke, it reached 121.4 cents/litre in late December. The lowest recorded pump price of the year was 97.4 cents/litre in both Montreal and Quebec City, and 99.4 cents/litre in Sherbrooke.

Refining margin. The average refining margin was 10.9 cents/litre in 2010. Unlike in 2009, there were no major swings in the refining margin: its low for the year was on August 18 (7.2 cents/litre) while its peak occurred on May 17 (16.1 cents/litre).

Periods of stability. In Quebec City, the year was marked by several brief episodes of stable pump prices. The longest of these lasted 22 business days: from October 6 to November 5 inclusively. During that time, the price per litre of regular gasoline stood firm at 108.4 cents/litre, while the retail margin varied between 6.8 and 3.5 cents/litre. In Sherbrooke, a litre of regular gas sold for 109.4 cents/litre for 54 consecutive business days (October 8 to December 23), during which time the retail margin varied between 7.3 cents/litre and -1 cent/litre.

"Generally speaking, one can sum up the situation in 2010 simply by saying that in several regions, the pump price of gasoline does not reflect either the logic of supply and demand or market fluctuations," Ms. Gagnon concludes.

CAA-Quebec's Gasoline Watch tool can be consulted on the www.caaquebec.com. It is also available as an application for the iPhone, iPod touch and iPad.

CAA-Quebec, a not-for-profit organization founded in 1904, provides automotive, travel, residential and financial services and privileges to its 1.1 million members.

 

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SOURCE CAA-QUEBEC

For further information:

Montreal  
Cédric Essiminy 
Public Relations Officer 
514 861-7111, ext. 3210                                 
Cell.: 514 717-4040
cessiminy@caaquebec.com
Québec
PhilippeSt-Pierre
Communications Advisor
418 624-2424, ext. 2418

pstpierre@caaquebec.com

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