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Gas prices are rising while crude prices are falling. What gives?8 J0 d; D$ h- M0 D* d& s! [
Published: Friday, January 16, 2009 | 5:11 PM ET
]% `5 X# L# SCanadian 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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+ e2 c5 }+ g, L' lThe 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./ d( c/ X l; L
6 F3 G9 T) b) V" c' W* j9 w' RCalgarians were paying on average 81.5 cents per litre - about a four-cent jump in just one day." f- \ t4 `7 D6 E$ H
' K# F; G1 J! O. P Z"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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! K2 t% Q, r* u7 ?( O8 E1 I# WBut 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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"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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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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; e. m! C4 l, N0 x: {1 l( HVancouver, 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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/ a7 G2 g3 }9 CThe price of crude oil, the main ingredient in gasoline, has been dropping steeply since it's peak of $147 reached in July.6 a5 c% a `2 }9 P' H: A* i
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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$50 a barrel a week ago.0 b% p, D# H' `7 }8 @1 j
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"Crude oil is an important input into the distillation of gasoline. But there's a lot of other factors as well," said Todd Hirsch, senior economist with ATB Financial in Calgary.
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" n7 B0 o' W ^Industry players would say they have to account for transportation, marketing and other expenses - not to mention taxes, which vary from province to province.7 |: t: F3 a2 ]* h
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But those oil companies - private-sector players in a free-market system - also want to turn a profit.
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"Without question those gasoline prices are going to be the highest they think they can get away with without their competitor undercutting them," said Hirsch.% ^: D$ H, O: G" ^! h
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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.") R0 `; d x# K1 f M" |" Y
, B) f. d: |& tAnother 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.+ n! b' v5 Y9 q5 @0 F& _
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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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1 X. W! J' K- |' _2 f( bHirsch 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.
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' m* m: u( N8 [7 Y"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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. M/ ?' y/ U8 a8 [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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"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.) j4 h+ T. D( F9 j3 S) U6 \& x
9 a( ?" |3 x& E1 m' H"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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