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Gas prices are rising while crude prices are falling. What gives?
- n2 F/ R2 Y; L8 @7 C+ P7 Y# U! nPublished: Friday, January 16, 2009 | 5:11 PM ET+ E/ q" t3 E! X$ \
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.& n# z; \* m+ Z( p/ n3 M
6 E; o( k/ X* {9 CThe 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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: G- D' D1 x0 {3 r* Q' l1 ]+ zCalgarians 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.9 g9 \: {( Q4 e# r. f$ K
% ^% w1 q0 o1 \: l: D4 C! j. dBut Friday's price is still a welcome respite from the $1.40-level gas many Canadian cities faced during the summer.$ y0 U4 c, r z. W+ u: ^
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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.
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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.". D. Q( y, U8 _9 V' r7 c
& |# y0 e# i! w* l9 QIn Toronto Friday, pump prices were 80.9 cents per litre. On Thursday they were 79.4 and a week ago they were 74.2.2 U: `, E+ ~- V Q" y) k0 A7 l
+ l( k- V; f1 ?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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2 B- M# F: B/ M6 fThe price of crude oil, the main ingredient in gasoline, has been dropping steeply since it's peak of $147 reached in July.2 v# @+ i$ I6 t
3 f2 Z9 e! A/ q- `) q5 p, P* I dThe February contract for crude oil settled at US$36.51 on the New York Mercantile Exchange, down from more than US$50 a barrel a week ago.
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( H& p+ F9 g2 X8 B"Crude oil is an important input into the distillation of gasoline. But there's a lot of other factors as well," said Todd Hirsch, senior economist with ATB Financial in Calgary.; Q, J7 [4 M0 i
) h/ h1 s2 ~9 v3 zIndustry players would say they have to account for transportation, marketing and other expenses - not to mention taxes, which vary from province to province.
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But those oil companies - private-sector players in a free-market system - also want to turn a profit.4 }' [! ?# ^ a. S" X# W) r
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"Without question those gasoline prices are going to be the highest they think they can get away with without their competitor undercutting them," said Hirsch.0 R6 i" r8 n$ F8 l9 m u
! K0 b: }' h, | t9 l"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 T3 U0 B8 _; ?6 D( v/ S
( m% M8 x# M6 A8 v( }) j+ N1 EAnother explanation could be that the February contract for crude oil expires on Tuesday, and the contract for March is already significantly higher, settling at $42.57 on Friday.( @6 |- M; y2 S
0 F1 k% w4 R) I, G# g" E"(The oil companies) might have realized that while prices were low in the last couple of weeks, they knew that there was going to be a correction," Hirsch said." t8 G$ \* _! ]" R
5 r7 s- J B0 }; ^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.1 w0 v: B7 K1 w: n
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"I'm not seeing a lot of strengthening in crude oil prices over the next six months," he said.
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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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"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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