Customers at St. Albert gas stations were in for a surprise Thursday morning as fuel prices dropped to about 99 cents.
Some may have welcomed the reduced hits to their wallets but economists warn that lower gasoline prices also point to possible shifts in the local economy.
Although oil supplies continue to ramp up, Alberta still lacks the ability to move a large amount of its product out of the province, said John Rose, chief economist for the City of Edmonton. This keeps prices at the pump low but could drive investment out of the province in the long run, he said.
"Over the last couple of months we've seen a very significant gap open up. Great for refiners, that supports their margins. Great for people who are buying gasoline because it helps to drive gasoline prices down," he said. "But in terms of continuing investment in the oilsands, not such great news."
Gasoline made out of the oilsands is a relatively expensive product compared to other sources of oil, said Rose.
In order to create increased investment and production, Alberta oil should sell for no less than $60 to $80 a barrel. Once the price drops below that number, and Alberta finds no additional pipeline capacity in the United States, the West Coast or Eastern Canada, Rose said oil companies may start backing away from major projects.
"That will reduce the level of investment activity and that will certainly impact manufacturing activity in the Edmonton area, transportation and logistics, engineering services, all those things," he said.
He added a decision on the Keystone XL Pipeline project into the United States is expected in early 2014. Should that proposal fail, Albertans may continue to see relatively low oil prices continue until another solution is found, he said.
Costco may influence local price drop
St. Albert gas prices may have also been affected by the arrival of Costco, said Jason Parent, senior associate with The Kent Group – an Ontario-based company specializing in petroleum industry research.
Parent said Costco stores are known to enter new market areas and drop their prices 10 to 15 per cents below the wholesale prices of other retailers, forcing those to compete. On Thursday, Costco sold a litre of gasoline at about 95 cents compared to 99 cents at other gas stations across the city.
"They are looking to sell memberships. They are not so much making a margin on the gasoline so they dropped their prices pretty significantly to try and persuade people to buy their memberships," Parent said.
He added that wholesale gasoline prices are often lower at this time of the year as people drive less in colder temperatures. The demand curve on gasoline is very seasonal, with sales picking up in the spring and summer and dropping again in the fall, he said.
"I don't expect (the price) will fall too much more but it depends on what happens with crude oil," he said. "If the prices are going to continue to decline it will be based on dropping crude prices which are really tough to predict."
