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Strong Loonie helping you at the pump

September 28, 2007

John, In the last sequence of Posts from the Pump Talk http://www.pumptalk.ca/2007/09/strong-loonie-h.html?cid=84257370#comments

 you said that the petro retailers (Petro Canada at least)

“… Your viewpoint on gas taxes is interesting. There is nothing that I know of that forces us to post the “all taxes included” price. It started years ago when taxes on gasoline were relatively minor, and has never changed. At one point we did talk about what would happen if we posted prices pre-tax. The consensus was it would just annoy consumers who were used to seeing the full price. The mental math at the pump would only lead to further frustration.

Instead, we’ve tried to help consumers understand the level of tax they pay – the pie-charts on the pump, website, etc. If you live in the Greater Toronto Area or Vancouver, you can find out the exact pump price at most Petro-Canada locations with a complete breakdown of taxes.”

If you indeed have the ability to post your pretax price – I think you are missing a GOLDEN opportunity to establish your pricing and industry leadership credibility.

By segregating the pricing – consumers will come to appreciate the tax policies that are being hoisted onto the gasoline pricing -and then be able to ask the subsequent questions as to where, how, how much and why these taxes are being collected and required.

But don’t believe me – send this out as a trial balloon to the media and gauge the response. No need to do infield market testing on a limited scope. This kind of storey would break from coast to coast engaging the public.

 If/when implemented it would ease some of the burden you now carry and place it back onto the government tax policies to debate on how those tax dollars are being directed. Are you guys supposed to be general tax revenue collectors? Or are the tax funds to be collected for transportation and energy infrastructure? But that is an entirely different kettle of whale.

Your other related point:

“…Last, we do care about the final retail price, but a lot of it is beyond our control. That’s not a cop-out, it’s just reality. We work hard to control costs and offer the best value. But as we know, best value is a subjective term…”

So what is your value statement? What is the Brand Promise PetroCanada wants customers to embrace and expect?

Locally competitive free market prices, clean stations, free* air pumps that work, easy pass convenience, good corporate citizenship and value-added programs?

Of course you want to provide value … so does ever ongoing business. But you, the petro retailer have at best, limited credibility that you are trying to keep the price of retail gas as low as possible. The message conveyed by the title and subject of your blog post is “external factors are helping you not us”. Come on Jon – talk about waving a red flag at a bull.

IF you want to start a revolution of converts – make those statements publicly and back it up with proof AND ACTIONS. You will accomplish miracles with that strategy – and put your face on the cover of Rolling Stone 😉

Provide a formula for all consumers to see and understand how the retail pricing will be derived based on the prevailing (or the blend of prevailing and past) sweet crude oil prices. Yes local market conditions will bounce that up or down – but then the consumer will be empowered with that knowledge and be able to make their own decisions that will influence the local market conditions.

Your retail stores will squawk at first- so be it. They do not have a monopoly on our money. And the market is not insensitive to the fact they also need to make money. In fact I think the market will applaud your transparency leadership and reward you for your efforts.

Pricing credibility is the foundation of the value proposition that will define whether you have transactional customers or partners.

But lets crawl before we fly.

* Free Air: I really want to applaud PetroCanada for not going the “25cent” donation route to work the air pumps. (see I can be magnanimous) It is a significant inconvenience and in fact plays an important role in my decision as to which gasoline stations not to use. That’s right Jon – I actually avoid certain brands because of this and unless I’m running on fumes – will skip past them basking in self righteousness. Why are they asking me to make a contribution? Why don’t they do it as a concerted program and donate 1/2 a cent per litre and generate a much larger pool of good works funding from the revenues they derive from all of my business? Beside who carries change nowawadays?

I know they have a goodworks program as well – but it just strikes me ( and I think others) the wrong way. Nonsense. An inappropriate and inconvenient policy. Sheer folly. 

Miro

++++++++++++++++++++++++++++++++++++++++++++++++++

Strong Loonie helping you at the pump?

While you may have been thinking that gas prices were high enough this summer, did you ever wonder if the strong Canadian dollar was helping or hurting you at the pump?  The Federal Government did, and the results are quite interesting.

Loonie_bgilliard_2Natural Resources Canada looked at gas prices in June of this year, which averaged about 106.6 cents per litre according to www.mjervin.com.   They found that if the Canadian dollar had not jumped in value, “gasoline prices could have been as much as 14 cents per litre higher in June 2007.”

That might have meant an average price of 120.6 cents per litre, or at least $7 more for a 50 litre fill-up.

Why is that?  Well, because crude oil is purchased in U.S. dollars, “Canadian refiners have benefited from the increased buying power resulting from the strong Canadian dollar relative to its U.S. counterpart.”

Now you may have read that and assumed refiners reaped most of the rewards.  Not so. 

“…due to competition in the North American gasoline market, Canadian gasoline consumers, and not the refiners, have benefited from the lower wholesale gasoline prices resulting from the stronger Canadian dollar.”

There are positives and negatives to a strong Canadian dollar, but this study sheds a light on some little known good news for consumers. 

If you want further information on how wholesale prices impact the price at the pump, read Gas Prices are like a three layer sandwich.

Photo credit: bgilliard

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Comments

Just another public relations blog to try and confuse the consumers. The oil companies with their abscene profits and exec. salaries don’t mined spending a little money on a web site to bamboozle the consumer.

It would be great if the oil companies execs were forced to read their own publicity blogs, every day before starting to work.

I appreciate what you are trying to accomplish with this site trying to help us understand.

There is a great believability gap between what the industry says, what we feel and see, how the market values the industry’s efforts and of course the profit generated all along the way.

Key Problems:
1. Petroleum does not operate in a free market system. OPEC has a great deal of influence.
2. The production chain’s ‘efficiency’/inability to respond/adapt to changing supply/demand considerations doesn’t penalize business (other than forgone profit) because the price just goes up to compensate for the supply issues.
(explain to me the competitive business sense when Sunoco? had their (Ontario) refinery fire earlier this summer – triggering a local and expanding gasoline shortage that saw everyone’s price go up – even when they had the capacity.

Its cases like this which scare me because the inelastic demand dictates the enterprise should do everything in its power (by action or inaction) to affect supply. Ie don’t build more capacity, do build up inventories too high.

3. Free market pricing responds to rumors and sentiment and there is a prevailing parachute pricing behavior at retail.

So let me restate this in another way:
When prices go up somewhere- you point to it and say – its because of some geopolitical or climatological disturbance that has an immediate impact at the pump – because of a cost of replacing inventory rationale. Ok, I buy that. But then why doesn’t the price come down as fast and as dramatically? Why is it that international events have impact on domestic supply that has always been earmarked for domestic supply?

The biggest challenge the sector faces is credible pricing – simple.
Something that shows a reasonable correlation to supply and demand going up and down the curve. But that is impossible because OPEC plays with the supply curve and others play with the perceived supply and demand curves.

How about having the industry lobby the federal government and charge the tax laws to permit gas pricing to reflect YOUR PRICE to us. That would be a huge start to allow what’s left of the market system to monitor and bring to public attention any local ‘inefficiencies’

Otherwise please tell me why what you or we say, read or rant has anything consequence in our lives other than getting us to begin changing our consumption behavior – knowing that you will be there right alongside charging us whatever the higher price premium is prevailing at the time.

PS. I thought that with the growing influence of Social Media there might be an opportunity to evaluate the market’s impact of these ‘avoid company x for a day’ emails. Perhaps one day we can see.

This is all speculation and misinformation by profiting people fueled by multiple media spokesman just restating what other media. Assuming prices are related to availability/consumption then the gas prices should in relative percentage terms be equal to the shortage of global petroleum. In spite of all the growth in the Far East it is very difficult to believe that the consumption of petroleum has gone up by 25% to 30% globally in the past year which is the increase in prices.

To George R. Pilbeam.

Thanks for your comment. I suppose coming from Corporate Communications anything we say could be labelled as PR.

We’re just trying to present information in a more user-friendly format. The answers are all backed up by research and facts which we link to or quote from.

As for the execs, many check this blog regularly. We also hope to bring them aboard by doing 5 question type interviews. We may even ask people to send questions in advance.

Miro.

Thanks for your detailed and well thought out comment. Let me try to address some of what you say. The rest may be better suited to future posts.

I understand the credibility gap. I just have to visit my family to know that I still haven’t gotten through to them. This blog is born from a belief that we have to keep trying new ways to respond to questions. Because there are answers.

Point 1: There are factors, like the impact of OPEC, that do have an impact on the markets, but they are open and competitive for the most part. Those who buy and sell commodities like oil and refined products look at supply and demand factors across huge tracts of geography. This makes it too big for any one force to exert control.

Point 2 – Clarification, it was the Imperial refinery in Nanticoke and not the Sunoco refinery. I talked to the media daily and the price was relatively stable during that period. I’ll double check my numbers, but prices really didn’t go up until later in the supply situation and largely due to factors beyond Ontario.

As for investing in our refineries, we’re doing that. The focus over the last few years has been reducing sulphur in gasoline. Billions have been spent by the industry. At the same time, while there are fewer refineries than in the past, the amount of product available has not decreased. Demand however, keeps going up here at home and around the world. While investing in refineries will continue where it makes financial sense, we should also be looking at ways to use the products more efficiently.

Point 3 – quick up and slow down at the pump. This requires more so I’ll post on it in the future. The quick point is that prices do quickly respond to changes in the markets and that’s why gas prices are lower thanks to the strong Canadian dollar while other consumer products have not yet followed suit.

I thank you for your comment and will go back to see what other information I can provide. I hope to shed light on some of the things that people assume are improper. As a media junky, I enjoy knowing why. Even if I don’t agree with the answer.

As for the boycott emails, I was going to wait until they start popping up again in the spring but may get into it sooner. Snopes does a good piece on those boycott emails.

Cheers

Jon

Jon

Yes Nanticoke – and the prices started going up into the second/third week of the event.

Regular unleaded Sept 26
Montreal @ $.98/l
Toronto @ $.94/l
Calgary @ $1.01/l
source: http://www.bakersfieldgasprices.com/retail_price_chart.aspx

Taxes per litre
Montreal:$.252+13.5%=.252+.132=.384
Toronto:$.247 + 6% = .247+.056=.303
Calgary: $.190 + 6% = .190+.061=.251

Pre tax Price/litre
Montreal:$0.596/l
Toronto: $0.637/l
Calgary: $0.759/l

I think that when places like the gas tracking service can provide 2 additional pieces of data (ie ex tax price) and ex tax price indexed to sweet crude – people will come to monitor, understand trends and retail pricing will stabilize.

Gasoline, Alcohol and Tobacco are the only categories that I am aware of which retail at a tax-in price.

What efforts (if any) has the industry taken to change this – pesuming you want to do so.

Still leaves the question as to how/why the industry profits reach record levels and yet everyone says there is no smoking gun.
(I’ll believe that after they explain Kennedy to me ;-^))

Lee Raymond CEO of Exxon left with a $400Million retirement package.
They could afford to give it because Exxon made $36 Billion in Profit – that’s the equivalent of 720,000 lbs of $100 bills – or a single stack piled 34.09 miles high!!!!
Granted not all of it was from retail gas- but the profit structure has been turned around so that we don’t have a chance to question or monitor the refinery margins. This retail stuff is annoying and keeps our attention on the smaller part of the equation. The bigger profits are upstream and at the wellhead.

Let me repeat and close by saying once again – no one begrudges a reasonable profit – its when it is taken to excess that the market (or government)needs to intervene. So perhaps in future we might see a US led lobby to have profit clawbacks beyond some reasonable+1 level for energy companies and alternative fuels/energy will do its part. But I really get the sence that no one in big oil is really concerned about retail prices – as folks are in other retail sectors – because for you guys it is simply passed along to us – and therein lies the crux of the matter.

Looking forward to your conversation
BTW I dont see any permalinks or trackbacks is that functionality being added to the site?

Miro

I like the Bakersfield website. I want to see where they get some of the retail pricing data, but it gives a nice quick historical overview of crude prices and pump prices. It would be nice to also show commodity prices for gasoline as that would provide a more complete story. Crude oil is a big component, but gasoline prices are set on the same market.

Your viewpoint on gas taxes is interesting. There is nothing that I know of that forces us to post the “all taxes included” price. It started years ago when taxes on gasoline were relatively minor, and has never changed. At one point we did talk about what would happen if we posted prices pre-tax. The consensus was it would just annoy consumers who were used to seeing the full price. The mental math at the pump would only lead to further frustration.

Instead, we’ve tried to help consumers understand the level of tax they pay – the pie-charts on the pump, website, etc. If you live in the Greater Toronto Area or Vancouver, you can find out the exact pump price at most Petro-Canada locations with a complete breakdown of taxes.

On Refinery margins, they are certainly better than they have been in the past. Before the last few years, most refineries saw single digit returns on investment. And running and maintaining a refinery is incredibly expensive. Much of the money we make gets invested back into the business to increase output and improve environmental performance. We’ve invested over a billion dollars over the last 10 years at our Montreal Refinery alone on environmental and efficency measures.

Last, we do care about the final retail price, but a lot of it is beyond our control. That’s not a cop-out, it’s just reality. We work hard to control costs and offer the best value. But as we know, best value is a subjective term.

I’ll look into why the permalinks and trackbacks aren’t working.

Pleasure talking with you.

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2 Comments leave one →
  1. September 30, 2007 12:30 am

    Hey Miro

    I’ll try writing over here for a change.

    We do look at various ways to provide information to consumers..that’s where pump talk, the pie-chart decals, etc came from. As for a formula, I like the idea, but it would look like something from Good Will Hunting. Too many variables to factor in.

    Posting pre-tax prices is tempting from time to time, especially when a politician steps up to rail against “high” gas prices, but I’m not sure it would help the situation. First, angry consumers want more than a “don’t look at me, look at him” approach. It may shift the anger a bit, but it doesn’t do anything to reduce it. Second, forcing consumer change of that magnitude with limited upside for the consumer would be a tough sell. It’s also challenging as gas taxes are different in each province, and sometimes within one municipality. The Greater Vancouver Regional District charges a 6 cpl urban transit tax on each litre of gasoline. There are some stations that are across the street from eachother that face different tax levels. This just keeps making the mental math more difficult.

    I like our GTA and Vancouver price breakdown on the site locator on our corporate website. You can check to see exactly how much you would pay for a litre of gasoline at that given moment…and how much tax would be included.

    As for the brand promise, etc. there is obviously much more than the price on the big sign. It’s just that it can overshadow other things. Retail gasoline is a difficult channel to differentiate within, but we’re working on it. Our service scores are high and loyalty program is going strong. And we’re testing several new concepts that are clearly different than anything that’s currently available in North America.

    Perhaps I’ll post in the future on posting ex-tax and see what kind of reaction it gets. It wouldn’t be the first time I was wrong. In the meantime, enjoy the free air 🙂

    Cheers.

    Jon

  2. October 4, 2007 9:06 am

    Hi Jon

    It will be interesting to see the impact of your poll regarding the pre-tax retail pricing from your blog readers.

    As I have said before, the intent is to have pricing transparency and credibility. Yes there would be a period of adjustment – but equally there would be a discussion to understand why, how fuel taxes are applied and where they are spent which could lead to a different prioritization.

    (maybe you can help shed some light – what % of people buy gas based on a $ limit vs on a litre limit – and is that really an issue as people would adapt from both sides of the spectrum)

    Maybe an interim solution would be to have supplemental electronic signs on the pump indicating the pre-tax price/litre of gas?

    If this were to be adopted – I believe Canada would be a unique example of this kind of pricing policy (although I am not sure of Venezuela)

    Remember as well that fuel costs will be going up. That is unavoidable and inevitable due to OPEC, emerging economy demand (India, China), the lack/limited refinery capacity (last refinery to be built in the USA was 1976, 1982 in Canada), hurricane impact on oil rigs, North American past love affair with SUV’s etc…

    So the debate on how the pricing is reflected in the marketplace by moving to pretax retail is to help focus the public’s attention and have them ask the right questions of the right people.

    Grumbling about prices doesn’t solve anything.

    I also think that consumers would respond to any retailer that was able to demonstrate it was a partner/solution in helping them manage their car gasoline/energy consumption. That would truly take root when consumers have a deeper appreciation of the upstream and downstream pricing/profit dynamic as it lays the foundation for a greater degree of public trust.

    Hope this helps everyone understand.

    Miro

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