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Gas prices are rising while crude prices are falling. What gives?
' i; f* E5 H9 xPublished: Friday, January 16, 2009 | 5:11 PM ET6 L# e o+ l, U- t, D* ?$ g' S
Canadian 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.9 b y1 o$ T, [7 D
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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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Calgarians were paying on average 81.5 cents per litre - about a four-cent jump in just one day.: J% [" }5 o- Y( |6 x
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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.7 l* E6 Q' g% l0 x; C
$ O5 f4 `9 K: [/ H% xBut Friday's price is still a welcome respite from the $1.40-level gas many Canadian cities faced during the summer.
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& y, I- _$ G6 S2 B"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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. k3 d- i% ~- i6 }& L+ J"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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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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Vancouver, which has higher gas taxes than other cities, has prices of 94.7 per litre, up from 87.5 a week ago.& A% x0 c% a4 \* f5 {6 p
* w" B/ A0 @& L" WThe price of crude oil, the main ingredient in gasoline, has been dropping steeply since it's peak of $147 reached in July.8 R$ N. |* R6 M+ Q; O) Z, N* ]3 @
" \) z* J# W5 F% `" d- CThe February contract for crude oil settled at US$36.51 on the New York Mercantile Exchange, down from more than US$50 a barrel a week ago.6 v8 _* P2 C$ A- l+ ^3 [. e
4 K3 I6 y1 L( p5 v8 m2 P! n% 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.
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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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$ r+ m2 }2 J& Z! e, _( A+ {& lBut those oil companies - private-sector players in a free-market system - also want to turn a profit.
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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.
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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."
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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 $42.57 on Friday.: [2 Y' W5 S6 T; g1 |, }
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"(The oil companies) might have realized that while prices were low in the last couple of weeks, they knew that there was going to be a correction," Hirsch said.
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" }2 j7 I$ N6 G8 AHirsch 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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8 K7 x0 D; o2 }"I'm not seeing a lot of strengthening in crude oil prices over the next six months," he said.! T/ v0 D2 f$ W
7 `# V4 A. D1 R, n8 H- U"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."
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- j% P. }) {$ o; B4 OBut 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.
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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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