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Gas prices are rising while crude prices are falling. What gives?1 r2 F4 ?9 h3 U$ d- e
Published: Friday, January 16, 2009 | 5:11 PM ET! k0 ~) J5 W/ r' h: x* ]/ ?4 N
Canadian Press NewsItem/NewsComponent/NewsLines/ByLine) x( A0 {; @) V6 h: @- I9 J
, Z0 A" n( Q8 {9 E+ N$ U; [- z! @' SCALGARY - 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.# X6 Q6 q- i* A
4 R% g& o: P/ {: y1 ~0 O7 {4 lCalgarians were paying on average 81.5 cents per litre - about a four-cent jump in just one day.
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. K8 S# I) o! R! K3 ?9 J"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.- L: \& U5 X; y* f/ d. u$ N" y$ y, ~' }+ m
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But Friday's price is still a welcome respite from the $1.40-level gas many Canadian cities faced during the summer.5 o8 S% t+ @9 [6 m. f1 r0 ~, k
! Y) ]- z4 h8 c9 b8 O9 k"I definitely changed my habits in the summer. I was going to go on two road trips, which I did not go on by virtue of the fact that the prices were so high," Lawnikanis said.) }, W; I' W4 u- N
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"Because of the fact that the prices are so reasonable, I've actually taken the liberty to drive more. I've really enjoyed doing more driving."5 H3 a( m! J) ~8 q
0 S+ \' M$ |8 C O/ vIn Toronto Friday, pump prices were 80.9 cents per litre. On Thursday they were 79.4 and a week ago they were 74.2.1 Y9 B& L* @+ N
9 n) q; y C! ~. y( K! r& f: mVancouver, 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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The price of crude oil, the main ingredient in gasoline, has been dropping steeply since it's peak of $147 reached in July.6 F5 ~8 Q, n, F5 X5 m8 g8 M
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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$50 a barrel a week ago.
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+ X. q% J1 C; v* Z. F4 K- _9 D"Crude oil is an important input into the distillation of gasoline. But there's a lot of other factors as well," said Todd Hirsch, senior economist with ATB Financial in Calgary.! s9 S7 r& l7 d: g+ m& Q* V) R
2 [( I; t O& J. [1 g8 V3 w: W/ Q. G3 DIndustry players would say they have to account for transportation, marketing and other expenses - not to mention taxes, which vary from province to province.. K; t; U& `* Q1 u. ~% s* _) ?
7 ?; p! z3 @( ~But those oil companies - private-sector players in a free-market system - also want to turn a profit.9 |4 S1 Q# Q$ s# w( q: m
8 L5 P$ V( t x" L @2 F% q) S"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.0 @& N$ e) {) m
$ c6 o! W# V. a, `0 F ]"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."6 Q4 a D8 s# h E# Q! L/ P, Z
! H+ `5 k1 Y7 QAnother explanation could be that the February contract for crude oil expires on Tuesday, and the contract for March is already significantly higher, settling at $42.57 on Friday.
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9 X' D2 h3 t! Y6 D4 V"(The oil companies) might have realized that while prices were low in the last couple of weeks, they knew that there was going to be a correction," Hirsch said.1 e0 P7 a- d8 F6 T+ |% F: }$ `
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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.5 c2 ^: o( \: Q2 Q% M8 E% C0 R
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"I'm not seeing a lot of strengthening in crude oil prices over the next six months," he said.- I' \7 {# [) @
& Y* B* ^+ f/ T1 o5 ["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."" x& ^: @- {3 i6 q( p$ j. d/ [. _9 i
3 }4 o* ~: S/ Z+ Q$ x% ^. R( PBut 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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"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.9 N4 O* ?) T8 y# l; C. H) L* F K
* L" M+ q0 P# Z8 E' ~"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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