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Gas prices are rising while crude prices are falling. What gives?
8 E7 z' s8 G) ^% gPublished: Friday, January 16, 2009 | 5:11 PM ET
6 z' f1 T6 M) j) d: ?. ?- pCanadian 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.
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7 T5 p5 B! Z. k* c3 {: rThe 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.
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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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0 j6 u& L; j/ k3 O) O"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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"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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7 E# a' w; h& g, K( UIn 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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Vancouver, 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.
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g% @- K( d! F* i% T) bThe February contract for crude oil settled at US$36.51 on the New York Mercantile Exchange, down from more than US$50 a barrel a week ago.
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"Crude oil is an important input into the distillation of gasoline. But there's a lot of other factors as well," said Todd Hirsch, senior economist with ATB Financial in Calgary.& q2 b0 p5 j9 z9 F( F* t5 h0 H
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Industry players would say they have to account for transportation, marketing and other expenses - not to mention taxes, which vary from province to province.
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8 y( I4 w$ H% X' u bBut those oil companies - private-sector players in a free-market system - also want to turn a profit.# x( V2 @6 A8 v: j5 B6 l) e
v) C# I' X5 S+ C; q"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."$ ~$ l3 Q. F# i& [
( {" W8 ^2 p' j& B: YAnother 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.0 u; K( H( M I+ z+ ~
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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 ~5 s. J6 A/ k% u5 c& Z
$ ^' Z W& j1 n7 L"I'm not seeing a lot of strengthening in crude oil prices over the next six months," he said.( p! ]' {- j. ~. j! L: l6 E, C
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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."* Z# z* D9 z6 x$ M+ u8 Z
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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.$ `1 x0 N2 h7 t. q
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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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