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Gas prices are rising while crude prices are falling. What gives?5 H8 M0 D9 b/ H u2 @5 V
Published: Friday, January 16, 2009 | 5:11 PM ET, B; `7 k* M, n- {% _5 D
Canadian Press NewsItem/NewsComponent/NewsLines/ByLine
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CALGARY - With crude oil prices falling, motorists may wonder why gasoline prices are heading in the other direction.- `, c7 ]' I8 V3 ~
. B" k5 v i: u1 N0 d" `9 xThe average Canadian pump price rose to around 81.75 cents per litre Friday - more than three cents more than a week ago, according to the price-tracking website Gasbuddy.com.
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Calgarians were paying on average 81.5 cents per litre - about a four-cent jump in just one day.
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"I don't actually understand it and I do work in the oil and gas industry, so I'm perplexed about it," said Paul Lawnikanis as he filled up his truck at a Calgary Esso station, which was selling gas for 80.4 cents per litre.1 Q0 \+ h6 z2 t- w' }
4 J8 v5 D1 u. g; bBut Friday's price is still a welcome respite from the $1.40-level gas many Canadian cities faced during the summer.
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1 i0 E) L2 y/ n- ^) t"I definitely changed my habits in the summer. I was going to go on two road trips, which I did not go on by virtue of the fact that the prices were so high," Lawnikanis said.
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- {2 w# N# u) \4 o8 L! x; D0 c8 m"Because of the fact that the prices are so reasonable, I've actually taken the liberty to drive more. I've really enjoyed doing more driving."
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9 H' H3 W+ |- h8 n, XIn Toronto Friday, pump prices were 80.9 cents per litre. On Thursday they were 79.4 and a week ago they were 74.2.# o4 e! U( D) D$ J
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Vancouver, which has higher gas taxes than other cities, has prices of 94.7 per litre, up from 87.5 a week ago.
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3 {3 M# T, a- G xThe price of crude oil, the main ingredient in gasoline, has been dropping steeply since it's peak of $147 reached in July.0 C5 \5 t: ~( V
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The February contract for crude oil settled at US$36.51 on the New York Mercantile Exchange, down from more than US$50 a barrel a week ago.
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; s% L3 g6 l% q6 o& t"Crude oil is an important input into the distillation of gasoline. But there's a lot of other factors as well," said Todd Hirsch, senior economist with ATB Financial in Calgary.8 J z0 `) i$ ^/ T' i
- W: @ u5 s2 f4 ~7 r% e8 x! R6 `Industry players would say they have to account for transportation, marketing and other expenses - not to mention taxes, which vary from province to province.% r% D9 O f+ j' `* f' R2 i$ q
$ q7 Q9 p! k: T$ S1 eBut those oil companies - private-sector players in a free-market system - also want to turn a profit.9 H& r4 L5 a+ G- K6 t( ]
0 q# y, ] I" J) T5 P/ A/ l"Without question those gasoline prices are going to be the highest they think they can get away with without their competitor undercutting them," said Hirsch.. R) W+ a% e* F& G! r
; u: { F& p0 g3 U3 H+ `& _" e"They're out to maximize their profits for their shareholders. I don't think there's anything evil going on in them trying to get the highest price. Every retailer in the country does this."
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/ w3 K' g# L B6 C$ K, sAnother explanation could be that the February contract for crude oil expires on Tuesday, and the contract for March is already significantly higher, settling at $42.57 on Friday.( }+ ~6 j8 b2 {0 a9 N- |
I3 H& k* s9 A8 X) U8 N2 q"(The oil companies) might have realized that while prices were low in the last couple of weeks, they knew that there was going to be a correction," Hirsch said.) w* h. Z5 w9 ]! ~7 C: o, i
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Hirsch expects pump prices to bounce between 60 and 90 cents per litre over the next few months, but not retesting the heights of last summer.
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* q& n. N& [5 |3 A% _"I'm not seeing a lot of strengthening in crude oil prices over the next six months," he said.+ Q7 e. M$ A6 n, z: a0 S' i
1 T" E3 Q3 v% r0 G"In the next six months I would expect to see gasoline prices more or less in the range they're in now, maybe firming up a little bit towards the spring and summer driving season as demand rises."
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3 ~1 S) |5 u3 N! `; Z1 {But Gasbuddy.com co-founder Jason Toews said he sees gas prices going higher than their current levels because of a slowdown in Alberta's oilsands and expected production cuts by the Organization of Petroleum Exploring Countries.
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"With lower supplies of crude oil in the market it's going to push crude oil prices up, especially if the economy starts to recover a little bit," Toews said.9 \9 h% K1 N3 {, \
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"Once the summer demand for gasoline comes, we're going to see gas prices go up quite a bit from where they are right now. We're going to see a return of a $1 per litre gas for sure and we may even see up to $1.20 per litre." |
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