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Gas prices are rising while crude prices are falling. What gives?; r9 r9 f, s# p6 f+ v- [
Published: Friday, January 16, 2009 | 5:11 PM ET
2 t1 o3 M* f! w, s: p! dCanadian Press NewsItem/NewsComponent/NewsLines/ByLine
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2 f+ H2 b# K1 C" XCALGARY - 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., N5 [8 V- E% {4 n. j
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Calgarians were paying on average 81.5 cents per litre - about a four-cent jump in just one day.2 l9 c( U, A4 z; v7 o! q( y# ?
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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.
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% t6 X) c+ m6 aBut 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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- n) @% \7 R# @2 |" a"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."3 `' Y# H6 V. U; H) z: I
3 y# Y1 R7 z! y/ `8 |4 H5 KIn 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.+ @& e I8 ~: @6 i+ l" I4 `% A1 i
: S. [. E2 K% v8 l, h! X/ mThe price of crude oil, the main ingredient in gasoline, has been dropping steeply since it's peak of $147 reached in July.& r r! ]/ E, R9 f i2 R5 z8 k ]
~, |. T2 W/ e) n; V ^) X% rThe 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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"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.. t2 Y2 k6 S v; R; G0 o9 W
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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.( M6 x& J# t9 h8 o
' T, p' m7 P) \, |+ o"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."; d T* I! t' g6 w; |, W8 G
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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 $42.57 on Friday.0 I$ s& L5 A4 b
7 z& i r2 R- ]& v6 d' D"(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.: M- _$ y- E% b; @+ f4 `8 Z
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"I'm not seeing a lot of strengthening in crude oil prices over the next six months," he said." F' ^0 Q* ~) a- C* N$ `/ z
6 B: u3 F/ l: w"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."% s- s1 d9 N: a( l
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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.+ k6 u, g- A; k E
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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.! f1 s+ w& d2 F
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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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