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Gas prices are rising while crude prices are falling. What gives?
# [% G J- o- l6 d SPublished: 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.
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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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' x+ @/ p- G' FCalgarians 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.) I) V/ J3 a- Z7 s
/ K% V& W) |( ?- YBut Friday's price is still a welcome respite from the $1.40-level gas many Canadian cities faced during the summer./ y! u9 \1 w% o4 _: a- l
: n1 W, p7 N `4 D2 i( F' Z3 H"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.7 G# S# g4 o9 _! J& O3 @. @2 [
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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."
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' B5 F# g% Z- w* C yIn Toronto Friday, pump prices were 80.9 cents per litre. On Thursday they were 79.4 and a week ago they were 74.2.4 l I+ K' H' m9 j+ t0 Z
( t& E9 r/ D. s. m+ r4 I+ ~! dVancouver, which has higher gas taxes than other cities, has prices of 94.7 per litre, up from 87.5 a week ago.& {* s9 h% |! p# d0 D4 b! y
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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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The February contract for crude oil settled at US$36.51 on the New York Mercantile Exchange, down from more than US$50 a barrel a week ago." I. I! [# F, C
_+ l$ s2 M8 J5 T) ~2 T& {! E0 Q"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.1 c- I% E3 t9 i% b
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But those oil companies - private-sector players in a free-market system - also want to turn a profit.
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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.* C e' v& J% l% f2 y" ?# o3 V
$ i5 |, P" @2 M7 R- M0 `+ }"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.
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* G7 ^5 j1 f" P"(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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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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' v, d* P2 y4 w8 O, {# O! H) n7 H"I'm not seeing a lot of strengthening in crude oil prices over the next six months," he said.! w) A2 Z; s* u8 L2 \
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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.- t- U# W+ P: I) j3 ^
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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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