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Gas prices are rising while crude prices are falling. What gives?
& p; z. E4 l5 ~3 x9 L& ~ u sPublished: Friday, January 16, 2009 | 5:11 PM ET
3 ?* ]2 u y9 bCanadian 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.0 o1 ?! Q8 T3 U2 _) _3 x1 B8 x! V
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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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+ k, w" c- B: C" @Calgarians were paying on average 81.5 cents per litre - about a four-cent jump in just one day.6 \4 |4 f/ M2 ~* _/ h
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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.% A3 c, n. |+ j2 z4 l
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But Friday's price is still a welcome respite from the $1.40-level gas many Canadian cities faced during the summer." {8 h& X/ B, s9 a& |2 v
3 T: ?0 s k- ]& |9 e3 g"I definitely changed my habits in the summer. I was going to go on two road trips, which I did not go on by virtue of the fact that the prices were so high," Lawnikanis said.
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) I' E6 K/ }9 t5 v# g) ^/ l"Because of the fact that the prices are so reasonable, I've actually taken the liberty to drive more. I've really enjoyed doing more driving."1 F q' t P/ x" o
( q Q: F3 s8 K- h, N" LIn Toronto Friday, pump prices were 80.9 cents per litre. On Thursday they were 79.4 and a week ago they were 74.2.
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0 s4 @' z: ]8 A3 e$ ^1 G9 gVancouver, which has higher gas taxes than other cities, has prices of 94.7 per litre, up from 87.5 a week ago.
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, l- n) q$ A0 N7 hThe price of crude oil, the main ingredient in gasoline, has been dropping steeply since it's peak of $147 reached in July./ d$ T# P$ N9 C: c$ N- F+ G
8 g& X: ?+ u2 ZThe 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.- ?. N+ {% J1 _! t3 t4 x
$ [; C3 o9 [: g! R"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.) K7 Q/ Z6 I6 r# p
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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.. B4 R2 J$ V: s: `- ]$ j! O
0 a6 K. S% ^; L5 n7 ^- O7 G3 pBut those oil companies - private-sector players in a free-market system - also want to turn a profit.
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9 N9 _9 g: i P y7 V6 R"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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: [# P7 Y8 ~' L0 d1 S"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 j4 L9 T8 y" V! c! G# zAnother 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.0 d( ^; P7 f; a/ ?' o ]
* e# Q+ I5 W I8 ["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."* @0 H4 u1 i E& s) O
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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.6 Y, Z w2 j: X) d
7 S3 R0 r: d9 ^6 _; [) Z"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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. d' q" V% g& T1 Y7 V7 p"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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