February 10, 2016 – Gasoline is cheap (at least in Alberta)

Gasoline in Edmonton this morning is selling at 59.9 cents per liter. Deduct 5% GSP and that is 57.0 cents per liter. Deduct 10 cents Federal excise tax and 13 cents provincial gasoline tax and that is 34 cents per liter before tax. THAT is cheap.

There are 3.785 liters in a U.S. gallon so in Alberta the price is now $1.29 per U.S. gallon plus taxes. And it’s $2.27 per U.S gallon all-in after taxes. And that is U.S. $1.63 per U.S. gallon. Albertans certainly have nothing to complain about when it comes to gasoline prices. (Now would be an opportune time for the Alberta government to raise gasoline taxes to deal with its budget problems although such a move would certainly not be popular).

Gasoline in Alberta is roughly half the cost it was a couple of years ago. Someone driving 16,000 km per year at 10 liters per 100 km buys 1600 liters of gasoline per year and is currently saving about $1000 per year compared to when gasoline was $1.20. And many people would be buying twice that amount of gasoline and so saving perhaps $2000 per year, at the current 59.9 cents price.

It’s interesting to think which companies will benefit from lower gasoline and other transportation fuel prices.

Airlines, rail roads and package delivery companies will benefit even net of fuel surcharges.

Gasoline retailers may increase their gross margins which are typically around 5 to 6 cents per liter although that depends on how intense the competition is. Gasoline retailers will also save a LOT of money in credit card fees. Generally, I would expect these lower gasoline prices to be quite beneficial to Alimentation Couche-Tard. Revenues for gasoline retailers will be down but profits will likely rise.

Credit card companies will suffer a loss of fees on the lower gasoline prices. This may be a large enough part of their business to be a noticeable drag on earnings.