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Gas prices are rising while crude prices are falling. What gives?0 w h9 c6 z9 u6 k' `2 J
Published: Friday, January 16, 2009 | 5:11 PM ET
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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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9 Y* O3 \. d' W: HThe 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.; q3 ?- V% _, k! W
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Calgarians were paying on average 81.5 cents per litre - about a four-cent jump in just one day.6 K9 c( ?. o0 Q1 [
" V; r3 X/ s- 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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% a+ {# ^, z% W! HBut Friday's price is still a welcome respite from the $1.40-level gas many Canadian cities faced during the summer.8 v( w( s" R1 _; o# Y
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"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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4 _4 C. \+ w1 F" q9 q"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.") x5 p; m8 J, X; I' Z
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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.( V+ b/ d# O; T, b+ M4 s
# @+ @+ Z! x: rVancouver, 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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9 r, p& ~- E B5 NThe 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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7 e4 A9 j& k4 @The February contract for crude oil settled at US$36.51 on the New York Mercantile Exchange, down from more than US$50 a barrel a week ago.
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: \; h6 Z! P" `; I+ D# J1 O"Crude oil is an important input into the distillation of gasoline. But there's a lot of other factors as well," said Todd Hirsch, senior economist with ATB Financial in Calgary.
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Industry players would say they have to account for transportation, marketing and other expenses - not to mention taxes, which vary from province to province.
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But those oil companies - private-sector players in a free-market system - also want to turn a profit.
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- C8 T+ }0 E9 \, @7 G0 x/ C, e"Without question those gasoline prices are going to be the highest they think they can get away with without their competitor undercutting them," said Hirsch.
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& J+ s% _; s2 w0 }( U"They're out to maximize their profits for their shareholders. I don't think there's anything evil going on in them trying to get the highest price. Every retailer in the country does this."! w. Q) h, v/ T4 M' Q* J6 f$ [
2 T. t ` x5 VAnother 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.! ~+ }6 t) V/ b. w
- ?+ e6 T2 J3 r) }4 LHirsch 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.9 X! |" C4 R# s* e; s& a0 c
; R+ X3 u( ^; E"I'm not seeing a lot of strengthening in crude oil prices over the next six months," he said.
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: F" W5 J% q6 _# k% A6 Z% z5 @"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."5 O; e8 W/ `: [6 g1 E5 e
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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.
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% L- ?0 N1 V' q"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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) B+ W; ~9 c, E( u"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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