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Gas prices are rising while crude prices are falling. What gives?
- j. H! ~" s* F! kPublished: Friday, January 16, 2009 | 5:11 PM ET0 N( {4 m% g/ G8 b9 t+ p
Canadian Press NewsItem/NewsComponent/NewsLines/ByLine6 c# B5 w/ v, ^7 ` Z6 K4 s
/ t/ F j8 z7 l# nCALGARY - With crude oil prices falling, motorists may wonder why gasoline prices are heading in the other direction./ \: v$ b, ~2 X! y
Q( h5 ]/ r/ K$ aThe 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.3 o8 s6 S" [; ?) @) H$ ~5 a* ~
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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.( D2 q2 v1 U4 r2 |, R+ t* v
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But Friday's price is still a welcome respite from the $1.40-level gas many Canadian cities faced during the summer.! f# s0 }9 {- O `& k/ j# N3 y
7 B1 b O$ v9 g) L- _. T/ t, T! J"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."6 k# M- e8 P k$ l% g J
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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.
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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.9 _8 c! E8 ?0 a
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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.8 ]' N: j h, j; H/ k
9 n+ X. g; c! D6 b% r& E+ |: TThe February contract for crude oil settled at US$36.51 on the New York Mercantile Exchange, down from more than US$50 a barrel a week ago.
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0 `9 U1 L- h6 G: E$ e3 _# e"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.
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But those oil companies - private-sector players in a free-market system - also want to turn a profit.* S6 ^7 n- f$ _% T0 m
+ ?3 f: l; R) Z7 K"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.& D1 g+ \' n# `: Z
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"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."1 c8 u0 X d \
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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 $42.57 on Friday.
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+ d1 }; {3 t; x2 E"(The oil companies) might have realized that while prices were low in the last couple of weeks, they knew that there was going to be a correction," Hirsch said.
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4 \, |- Q4 |5 ~' NHirsch expects pump prices to bounce between 60 and 90 cents per litre over the next few months, but not retesting the heights of last summer.
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1 Q; _8 {7 W& y+ L0 u"I'm not seeing a lot of strengthening in crude oil prices over the next six months," he said.2 S% [' n) n$ [$ c
+ }% ?( B- F/ E! ~"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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* |; Y4 q) k9 X9 m" D, B3 wBut 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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1 y; c, O" f6 Q7 {3 T3 b"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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