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Gas prices are rising while crude prices are falling. What gives?7 A' `) x. ?" W6 p* n
Published: Friday, January 16, 2009 | 5:11 PM ET
5 P7 l& }) b4 O6 k; QCanadian Press NewsItem/NewsComponent/NewsLines/ByLine
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" k9 `+ D4 P2 u1 PCALGARY - With crude oil prices falling, motorists may wonder why gasoline prices are heading in the other direction.! j s: p9 b0 @
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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.7 a, y0 ?: X( Y% f- ^
* r: g$ d8 l7 u( |+ k7 h7 QCalgarians were paying on average 81.5 cents per litre - about a four-cent jump in just one day.6 S, K& `+ h6 b/ D7 F. P; [
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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.$ Y; G! F$ e( ?4 U% y. S
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But Friday's price is still a welcome respite from the $1.40-level gas many Canadian cities faced during the summer.8 I3 r1 r/ d" X$ [7 G
\/ v% y/ O9 x2 n"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."
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3 H( S$ n4 a: e' }0 b' T* r4 RIn 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.& B: h& J" H8 [( I1 z# R& 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.9 p: q1 E+ s4 ]1 @
) t* T/ ?! B) o# b# I: NThe February contract for crude oil settled at US$36.51 on the New York Mercantile Exchange, down from more than US$50 a barrel a week ago.8 I; [# u) @* a0 {8 ]
( A/ y5 u2 l# @3 |$ t6 N, c"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." L% W' |8 @2 B; W4 R( Y0 U; f% Z
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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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( R! h5 B/ M, q+ Q* ?' h$ @But those oil companies - private-sector players in a free-market system - also want to turn a profit.
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( J$ C% A& z" k3 R1 K. 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.) w/ ]& M$ f/ T; _& {
0 P' b5 b ^! L5 a"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 $42.57 on Friday.
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0 W0 O O3 ]- f% C) i+ U"(The oil companies) might have realized that while prices were low in the last couple of weeks, they knew that there was going to be a correction," Hirsch said.* `9 Z' Q* C" t) N2 x
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Hirsch expects pump prices to bounce between 60 and 90 cents per litre over the next few months, but not retesting the heights of last summer.1 ~$ h7 N+ y0 v& S% V+ X* i% B
" p7 ^( R7 p+ w"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."8 Q0 K, l0 Y3 S4 H
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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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2 Y/ }- K: }- o1 ^ E1 l"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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) c0 F" ?6 Q' r) L8 Z" P$ s4 H"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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