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Gas prices are rising while crude prices are falling. What gives?
4 G* z' A! f5 J: X1 O1 N5 U, a7 q+ UPublished: 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.8 e# P6 \4 H0 b( M6 F
7 D! H2 r9 D7 X0 }# yThe 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.: X. D9 A5 X w! r- k6 N I& b
2 T) q) X2 @2 {"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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1 H% X9 _6 n; ZBut Friday's price is still a welcome respite from the $1.40-level gas many Canadian cities faced during the summer.7 H; @( B5 h6 b
% B3 w8 }5 f/ u; X0 b' ^& A"I definitely changed my habits in the summer. I was going to go on two road trips, which I did not go on by virtue of the fact that the prices were so high," Lawnikanis said.$ ^5 @" a2 Z6 I5 p) _' P
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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."! G. A* F* t% m- K) D9 ^6 w) G
3 V! M' z0 |% l5 Y kIn 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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5 I* i9 d$ u- R1 g# o3 ?Vancouver, which has higher gas taxes than other cities, has prices of 94.7 per litre, up from 87.5 a week ago.$ i9 Q9 Y4 C" d5 L D: ~0 J2 G: Q1 ~
4 e* m# ]5 \# C0 \/ z0 Y: a5 _The price of crude oil, the main ingredient in gasoline, has been dropping steeply since it's peak of $147 reached in July., {1 X8 O3 ]! h( _; C5 _
% T% b3 c0 @1 A9 u! v$ r2 z6 IThe February contract for crude oil settled at US$36.51 on the New York Mercantile Exchange, down from more than US$50 a barrel a week ago.
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, {. P1 c1 w2 d Q6 r"Crude oil is an important input into the distillation of gasoline. But there's a lot of other factors as well," said Todd Hirsch, senior economist with ATB Financial in Calgary.
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Industry players would say they have to account for transportation, marketing and other expenses - not to mention taxes, which vary from province to province.. b" n' V0 D0 V
S9 X, h& ]' }$ Z1 X4 |8 jBut those oil companies - private-sector players in a free-market system - also want to turn a profit.) {9 p, O% T0 T$ R9 _: q
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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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% i0 r" d( y$ ?7 ]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 $42.57 on Friday.
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"(The oil companies) might have realized that while prices were low in the last couple of weeks, they knew that there was going to be a correction," Hirsch said.
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Hirsch expects pump prices to bounce between 60 and 90 cents per litre over the next few months, but not retesting the heights of last summer.) {( E! C! E: y5 D# Y! x
2 |$ P2 R# D G) L) e$ ^+ t# u0 O"I'm not seeing a lot of strengthening in crude oil prices over the next six months," he said.
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& T) e! P2 ]8 K; e1 R* x"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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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.* r1 |* P. q, C# `' z2 R
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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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