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Gas prices are rising while crude prices are falling. What gives?; S# p( l4 `: L$ C8 w" b. t8 Y
Published: Friday, January 16, 2009 | 5:11 PM ET6 G$ O ^, ~7 { \7 I+ ?/ n
Canadian Press NewsItem/NewsComponent/NewsLines/ByLine
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& B8 V r& F2 _6 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.) ^) j7 B2 \3 J( T3 s9 X# C
' q* k& _$ p! \+ j3 |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.) o$ p g7 c% v4 V, m/ t7 m" t* R
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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 L/ ]+ ], I! J3 v+ v& I) j# d
5 `1 [. w# j- D"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.4 A5 m+ l6 y, J7 x; p# B, h
; T+ L4 P% [! k: B j: z"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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, F+ Y& ^; f9 j) t( S" eIn 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 R4 O; e! D" I- {9 L! k1 B
' \. h/ I1 `# q6 G1 v. ^4 p; hVancouver, which has higher gas taxes than other cities, has prices of 94.7 per litre, up from 87.5 a week ago.; Y! z- J5 e/ Z# ^ t: K Z2 Z9 L
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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.
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7 b. n/ Y2 `/ A4 Z+ e0 p"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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5 c9 r2 _4 t( f1 pBut 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.
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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."
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6 }1 ^7 L, a. G; p& i ^( GAnother explanation could be that the February contract for crude oil expires on Tuesday, and the contract for March is already significantly higher, settling at $42.57 on Friday.
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"(The oil companies) might have realized that while prices were low in the last couple of weeks, they knew that there was going to be a correction," Hirsch said.
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9 s0 U$ v6 U+ a" a! ZHirsch 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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4 \% t' N! O. ~+ ~- O"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.", J& ?0 _2 }; b0 q( n
" O. A3 R" m3 q! oBut 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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, p) D! g Y+ d( Y) b9 P"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.. A0 ^. d/ }& f2 _$ ~- |
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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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