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Gas prices are rising while crude prices are falling. What gives?
6 a. V2 F, l4 c4 m% HPublished: Friday, January 16, 2009 | 5:11 PM ET
4 m6 K2 Q" |1 @$ vCanadian Press NewsItem/NewsComponent/NewsLines/ByLine
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4 c& o2 K. y' c1 zCALGARY - With crude oil prices falling, motorists may wonder why gasoline prices are heading in the other direction.
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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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7 a* Y2 y4 b; J" UCalgarians were paying on average 81.5 cents per litre - about a four-cent jump in just one day.2 j: I0 ?7 v2 S3 v/ S3 Y6 z
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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.: ~4 K$ e& W( F2 P' u
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But Friday's price is still a welcome respite from the $1.40-level gas many Canadian cities faced during the summer.( K9 O( J5 D- t/ o- P
S3 G0 T* G: q"I definitely changed my habits in the summer. I was going to go on two road trips, which I did not go on by virtue of the fact that the prices were so high," Lawnikanis said.
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S) t6 }2 X s, k/ T"Because of the fact that the prices are so reasonable, I've actually taken the liberty to drive more. I've really enjoyed doing more driving."
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In Toronto Friday, pump prices were 80.9 cents per litre. On Thursday they were 79.4 and a week ago they were 74.2.7 w0 Z0 s: W [& F9 v$ v; t' ~( }
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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.4 u. f6 v$ H; e; z4 h0 `' z
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The 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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8 D& s! }! v# u) ?8 p# {2 bThe February contract for crude oil settled at US$36.51 on the New York Mercantile Exchange, down from more than US$50 a barrel a week ago.$ T3 r& A( E- O: u: n. u; t% m
5 U/ U, w5 s3 P+ x, l- q) C! k( w! G"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.+ K; u# M& A% o7 K! u
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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.) ]' z: a8 H1 A# x$ B
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But those oil companies - private-sector players in a free-market system - also want to turn a profit.3 Y! C5 ^3 o: {# e+ C1 l: A9 g
# g! L7 T' y" 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.% E. W( Z/ g1 i. _7 z2 D) }% a8 U% e
) R1 e4 U; l6 I2 P h. c, p"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."7 [0 C( P& B" u5 |- i; e4 o
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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 $42.57 on Friday." o% \# k- ]: z- R
) v. I+ r9 N6 ?9 l9 X) Z& ]"(The oil companies) might have realized that while prices were low in the last couple of weeks, they knew that there was going to be a correction," Hirsch said.5 w$ B. T1 U" j8 ~
0 ^6 W& Q+ e0 M+ C5 hHirsch 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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" Z7 v5 @. ?6 }# @2 ["I'm not seeing a lot of strengthening in crude oil prices over the next six months," he said.
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2 s, C5 T5 C2 C5 d"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."5 u3 @7 M3 l/ _: O% o
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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.9 i' q: M5 s6 a5 S3 W
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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 M6 G: ], Z- D9 O9 b7 _3 Z8 j: ^
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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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