Soft demand for gas means prices will rise, but less than usual: analyst
Last Updated: Friday, May 8, 2009 | 5:09 PM ET
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Consumers across the country can expect gas prices to rise this spring and summer but not likely by the amount that they usually go up at this time of year because demand for gas is still soft, says a Calgary analyst.
"Well, this is the time of the year when pump prices usually rise. It's not unusual for pump prices to rise anywhere from 15 to 25 cents a litre in the spring and summer months. This happens in the absence of increases in crude oil prices," says Michael Ervin of Ervin & Associates.
"I don't think we will see that kind of rise this year because of softer demand for gas. Inevitably, we will see some kind of rise, but it will likely be less significant than we have seen in the last six or seven years at this time of year."
Ervin acknowledged that gas prices have risen in some cities across the country now as a result of increases in crude oil prices, but he thinks the oil price increases are not surprising. He said the markets are reacting to optimism about the economy.
"It reflects the price of future delivery. It reflects much like the stock market does. The price of crude oil is a reflection of future potential demand versus supply."
The average price of gasoline in Canada on Friday was 93.1 cents Cdn a litre, according to the gasbuddy.com fuel monitoring website.
Oil prices, meanwhile, rose to $58 US a barrel on Friday.
Benchmark crude for June delivery was up $1.34 to $58.05 a barrel by mid-afternoon in electronic trading on the New York Mercantile Exchange. On Thursday, the contract rose as high as $58.57 a barrel, a six-month high, before settling up 32 cents at $56.71. In London, Brent prices rose $1.31 to $57.78 a barrel on the ICE Futures exchange.
The increase in oil prices came as the U.S. Labor Department released figures on Friday saying employers had cut 539,000 jobs in April, the fewest in six months, and less than the expected 620,000.
The relatively positive employment report is leading investors to believe that improvements in the economy may increase demand for oil by the end of the year.
Ervin said he agrees with investors who say the market may be getting ahead of itself, but he added the increase in crude oil prices is not that unusual given encouraging economic news.
Federal Finance Minister Jim Flaherty told reporters in Hamilton, Ont., on Friday that oil price increases can be seen as good news.
"In Canada, we are a net exporter of oil, as you know. So when the price overall goes up, there's some benefit to our country, and some increase in price for consumers, of course."
Ervin said when the economy finally recovers, demand for gas will likely remain softer than it was before the recession because consumers have made it clear that they want more fuel efficient vehicles.
"They have felt the burn of higher pump prices," he said.
With files from the Associated PressShare Tools
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