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Gas prices are rising while crude prices are falling. What gives?& l* I9 R9 i9 L+ j# N* o; L: ]% l
Published: Friday, January 16, 2009 | 5:11 PM ET
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+ ]/ ?+ p# t) J6 B* UCALGARY - 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.
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\9 v' b2 N& x+ D: `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./ ^0 R; d/ O! r: S5 Q! D# X
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But Friday's price is still a welcome respite from the $1.40-level gas many Canadian cities faced during the summer.
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% W+ I D& q9 p"I definitely changed my habits in the summer. I was going to go on two road trips, which I did not go on by virtue of the fact that the prices were so high," Lawnikanis said.
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. G: ` B% B: B"Because of the fact that the prices are so reasonable, I've actually taken the liberty to drive more. I've really enjoyed doing more driving."7 ~: |# x% L3 F' N& D- Q0 A
/ k: S: X7 t3 x0 j9 ZIn Toronto Friday, pump prices were 80.9 cents per litre. On Thursday they were 79.4 and a week ago they were 74.2.
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% k' `3 [% _) e+ U+ e' c* @* xVancouver, which has higher gas taxes than other cities, has prices of 94.7 per litre, up from 87.5 a week ago.* ]$ |. q& j2 e. r( T
( ~5 w, J* y0 DThe 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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6 g7 V9 Z! S( j2 oThe February contract for crude oil settled at US$36.51 on the New York Mercantile Exchange, down from more than US$50 a barrel a week ago./ I8 w- ~, E8 }6 t A5 A
! Q2 b! c9 u5 x- W1 d, l"Crude oil is an important input into the distillation of gasoline. But there's a lot of other factors as well," said Todd Hirsch, senior economist with ATB Financial in Calgary.
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Industry players would say they have to account for transportation, marketing and other expenses - not to mention taxes, which vary from province to province.+ D" c( N6 F; c5 T
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But those oil companies - private-sector players in a free-market system - also want to turn a profit.
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"Without question those gasoline prices are going to be the highest they think they can get away with without their competitor undercutting them," said Hirsch.6 R8 ^; l; J$ Y) M
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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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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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"(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. e7 D7 j/ P. ^* I
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"I'm not seeing a lot of strengthening in crude oil prices over the next six months," he said.
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* g5 u0 V. A4 J1 t/ U( F"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."9 G. e- `3 s, ^% S6 C- y" x
3 W; ^9 Z3 u3 f" S/ MBut 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- ^1 J7 l+ O# k5 n* ]"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.& n' s* u, |5 J5 }+ B5 h( T3 a7 P0 u4 o
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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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