Nick Ford - Economist

Consumers may be enjoying lower pump prices but prairie petroleum producers are beginning to feel the pinch as the price they received for gasoline, diesel and light fuel all fell sharply in December.

Statistics Canada releases a monthly index called the Industrial Product Price Index (IPPI). The IPPI is used to calculate the prices producers collect once commodities leave the factory gate. Unfortunately, the index isn’t available at the provincial level, but since Alberta makes up more than half of the gross domestic product (GDP) of the prairie region, the price index provided at the regional level is a good indication of what Alberta producers are receiving. Price levels are indexed to prices in 2010 and are set to equal 100.

The price index for motor fuel fell to 88.2 from 108.8 across the prairies in December, marking a stunning 25 per cent drop from one year earlier. The price received for other petroleum products such as diesel and light fuel oil, fell to index values of 130.5 and 125.1, accounting for a 15 per cent and nine per cent (year-over-year) drop respectively.

It’s clear the falling price is the result of lower input costs (oil) for sellers. Since July, the price of oil has fallen more than 50 per cent since last summer’s highs. In addition, the volume of fuel being produced at other refineries across North America has pushed supplies higher, which has caused refinery product prices to fall as well.