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Gas prices are rising while crude prices are falling. What gives?
$ g& s7 X$ f5 q& u% c( GPublished: Friday, January 16, 2009 | 5:11 PM ET
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CALGARY - With crude oil prices falling, motorists may wonder why gasoline prices are heading in the other direction.; y" O$ x3 P9 w' k( ^, k0 ^
8 D+ k4 P" D/ R+ u* ]The 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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. `) u# p. T6 i1 i" B) a9 O5 D"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.8 i" x4 H; R) P6 L: N
$ k7 t' G! t$ P+ z' @' pBut 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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"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.; G. o, m. T+ F) D5 z
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"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."2 r* ~6 p; U' p1 m
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In Toronto Friday, pump prices were 80.9 cents per litre. On Thursday they were 79.4 and a week ago they were 74.2.1 e1 R/ d, D. _( o p
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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.5 J8 _0 _6 }3 B' I! z
% G) D8 B; X6 RThe price of crude oil, the main ingredient in gasoline, has been dropping steeply since it's peak of $147 reached in July.
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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$50 a barrel a week ago.) {$ {! ]( z9 N4 P- h6 ~
! q# n2 |, z# ~& F+ S7 X" F+ A"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.
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Industry players would say they have to account for transportation, marketing and other expenses - not to mention taxes, which vary from province to province.( H8 Q; g9 P3 q! e, i! r2 x) t
" U/ y2 l/ V& _5 e* @! J" b0 g VBut those oil companies - private-sector players in a free-market system - also want to turn a profit.# {8 |% P0 G) x/ O+ X; m
0 _+ P; E# M {- {* X"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.' g% [5 B8 n) K4 ~8 |; n8 d
/ R* @2 t7 b% R"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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Another explanation could be that the February contract for crude oil expires on Tuesday, and the contract for March is already significantly higher, settling at $42.57 on Friday.: n, ~4 ^$ i$ _3 g# f0 Q
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"(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./ c* T L& S: m: x" j4 e% }& `
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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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"I'm not seeing a lot of strengthening in crude oil prices over the next six months," he said.) ^% R' ^- |: q
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"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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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.
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& h& D0 C9 F1 y) o( N( G"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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