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High gas prices may reflect business needs: Analyst

High gas prices in Lloydminster could be the result of different revenue strategies among gas stations, says an analyst form GasBuddy.com. Prices for fuelling up in Lloydminster average above or close to $1.05 per litre, while areas such as North Battleford are seeing prices below $0.90 per litre.

Dan McTeague, a Senior Petroleum Analyst at GasBuddy.com, has been analyzing gas prices for close to 25 years. McTeague says many gas stations sell gas at a loss.  The differences in gas prices often cover the gas station’s expenses.

“If I look at prices right across at $1.039, I’m not surprised at that number, simply because most gas stations are having to replace that at 92 cents per litre,” says McTeague.

According to McTeague, gasoline costs the same for everyone who’s selling it. That 12 cent difference is a retail margin that covers the costs of running a gas station.

“That’s pretty much what it takes for gas stations to do things like honour credit cards, pay for electricity, pay for their overhead,” says McTeague. “While other stations may have it much cheaper than that, say at about 98 or 97 cents a litre. That means they’re selling gasoline at a loss.”

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McTeague says that gas stations who sell cheaper gasoline may be making up for the costs in different ways. Sales of other types of fuel like diesel or supreme, or of products like beef jerky or bottled water may offer more revenue for some gas stations.

“Whatever the case may be, the reality is that everyone pretty much starts at the same number. Whether you happen to be in Vermilion, whether you happen to be in Calgary, whether you happen to be in Lloyd. The only difference is what’s known as the retail operating margin,” says McTeague.

McTeague adds that many stations may sell gas at a loss per litre in order to get you inside their store. While they may be selling cheaper gas, they still have a high operating margin to make up revenue for.

“Understanding the economics of a gas station is that there’s not a lot of money being made selling gasoline in and of itself,” says McTeague. “If you can’t make money selling gasoline, you have to find another way in order to survive, because running a gas station isn’t free.”

When it comes to prices in bigger cities like Edmonton, McTeague says there are other ways gas stations can make money selling cheaper fuel.

“The amount of gasoline you sell there may be substantially higher, so your volumes are greater. You might be able to get a volume discount from your supplier,” says McTeague.

While this advantage may be available to gas stations selling more fuel, McTeague says it’s not always like that.

“I’m seeing a lot of gas stations that are offering fuel, in Edmonton, for $1.00. or a $1.01. If I go to the GasBuddy website, I’m gonna see some offering for $0.879. That is a classic gas war,” says McTeague.  “There’s no one who can sell gasoline $0.879 unless they’re making it up somewhere else.”

McTeague also notes conditions may change for Saskatchewna gas sations once the province sees a federal carbon tax in the new year.

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