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Gas prices are rising while crude prices are falling. What gives?
, s" q- @% x4 X1 a2 ~, mPublished: Friday, January 16, 2009 | 5:11 PM ET
2 M( m u; u0 k. p% z2 R8 y. TCanadian Press NewsItem/NewsComponent/NewsLines/ByLine
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7 U E0 v/ N- G2 B; fCALGARY - With crude oil prices falling, motorists may wonder why gasoline prices are heading in the other direction.
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0 P% n* D5 a9 k- r2 z6 EThe 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.& a; E, ~ |" T8 d7 m( x q
5 X5 p* b9 j1 w' _"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 $1.40-level gas many Canadian cities faced during the summer.
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/ o& e6 I9 h' @* E+ r# M1 `"I definitely changed my habits in the summer. I was going to go on two road trips, which I did not go on by virtue of the fact that the prices were so high," Lawnikanis said.& L* H7 F# B$ Y4 j: h& m' L! V8 J
1 }* M" k6 r! N4 o"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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9 g5 V8 Y1 l' c7 u6 ~In 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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4 _) ~+ P7 v z1 S# E+ WVancouver, 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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* g- e! y& G0 W8 Z* C; A% H5 \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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The February contract for crude oil settled at US$36.51 on the New York Mercantile Exchange, down from more than US$50 a barrel a week ago.1 c: Y" |; y$ z
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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.; Q! z8 S6 x* b. }/ a
/ W' Q/ C1 @; \7 T; ]3 GIndustry 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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But those oil companies - private-sector players in a free-market system - also want to turn a profit.) E. \# B( Z) b' L
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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.. m9 X% s# s9 z) J$ A
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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."/ I# B' l4 L, X( Y/ X$ {
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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 $42.57 on Friday.
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/ M: V* i0 o* T" {9 N+ B6 w"(The oil companies) might have realized that while prices were low in the last couple of weeks, they knew that there was going to be a correction," Hirsch said.
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) y- z% e0 ^1 y) g* r& gHirsch expects pump prices to bounce between 60 and 90 cents per litre over the next few months, but not retesting the heights of last summer.
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"I'm not seeing a lot of strengthening in crude oil prices over the next six months," he said.+ ?. @6 H' z" y- j+ k) ^$ l; M& ?
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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."1 ~& N: g B' V$ h
7 @. _' |- U T2 ^ }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.
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# p/ x+ o4 k' j* b"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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