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Gas prices are rising while crude prices are falling. What gives?
* M0 W" I( h T" h% oPublished: Friday, January 16, 2009 | 5:11 PM ET/ p& J# m: Y8 @, \
Canadian Press NewsItem/NewsComponent/NewsLines/ByLine
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CALGARY - With crude oil prices falling, motorists may wonder why gasoline prices are heading in the other direction.7 Y. a; `; d, ]+ j W$ l
" {$ E6 g' S0 S6 x. SThe 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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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.4 j2 C/ {. r0 D, F* F
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But Friday's price is still a welcome respite from the $1.40-level gas many Canadian cities faced during the summer.
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Z+ Z( y7 E& h' O; O6 ?3 r"I definitely changed my habits in the summer. I was going to go on two road trips, which I did not go on by virtue of the fact that the prices were so high," Lawnikanis said.
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1 }. @3 U- ?: ~/ e"Because of the fact that the prices are so reasonable, I've actually taken the liberty to drive more. I've really enjoyed doing more driving."- C- [- N0 {$ E; d7 b( a
- b1 m; r- |+ y2 @# K$ F# e4 jIn 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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- T6 e8 b7 `5 F [3 u7 [" r: WVancouver, which has higher gas taxes than other cities, has prices of 94.7 per litre, up from 87.5 a week ago.5 P0 m* U% P; p$ N0 [9 I; q6 g
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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.. P4 Q7 O1 h, }9 q6 _# B* h6 i6 R
' z. \! M' z3 W0 \5 tThe February contract for crude oil settled at US$36.51 on the New York Mercantile Exchange, down from more than US$50 a barrel a week ago.
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4 ~. Z5 E: e) w; m$ {: 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.1 h5 |9 K* Z! I! ^
2 A1 w3 R9 G! M* b: Z) f0 xIndustry players would say they have to account for transportation, marketing and other expenses - not to mention taxes, which vary from province to province.3 y% {/ l5 W4 y* e2 s
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But those oil companies - private-sector players in a free-market system - also want to turn a profit.; B! w [/ V5 h& j! h5 P( i% `: s
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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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+ J- ]- q# n+ ]" z% ^ |, ]) U O( G"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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; F+ l2 k6 b c; pAnother explanation could be that the February contract for crude oil expires on Tuesday, and the contract for March is already significantly higher, settling at $42.57 on Friday.1 R+ w( ^! t5 t6 X* c) ?: L% [
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"(The oil companies) might have realized that while prices were low in the last couple of weeks, they knew that there was going to be a correction," Hirsch said.
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Hirsch expects pump prices to bounce between 60 and 90 cents per litre over the next few months, but not retesting the heights of last summer.0 I- g* W, W' S) Y) n* r
. J V Y4 p8 \/ L9 c5 d5 m& e# K+ w"I'm not seeing a lot of strengthening in crude oil prices over the next six months," he said.8 K$ S7 C) t: u: h, w3 Z* _+ B
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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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4 e0 _5 L, w) `" r7 |0 LBut 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." h; H: r4 |3 D/ _4 @' r1 O
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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.
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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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