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Gas prices are rising while crude prices are falling. What gives?
, x0 j3 K5 [) c+ C; OPublished: Friday, January 16, 2009 | 5:11 PM ET
6 \- B2 J {- Y, K6 K8 [$ @ M* m0 h9 CCanadian 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.- v# s2 K6 w% Z6 a2 s2 @
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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.3 T( l& F: R2 |# A" m7 w
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Calgarians were paying on average 81.5 cents per litre - about a four-cent jump in just one day.
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5 V( q% A3 J) {* D- v4 P2 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.3 { [9 c/ X& j/ D
8 Z; z7 Q/ U/ B; H0 g* RBut 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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& s0 q+ F7 T# k! h6 d& r"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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4 j- W8 q7 s0 {% JVancouver, which has higher gas taxes than other cities, has prices of 94.7 per litre, up from 87.5 a week ago.- n+ U9 \# }* Z/ t9 U
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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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Z. {( O) k7 y+ f) ~8 RThe February contract for crude oil settled at US$36.51 on the New York Mercantile Exchange, down from more than US$50 a barrel a week ago.
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"Crude oil is an important input into the distillation of gasoline. But there's a lot of other factors as well," said Todd Hirsch, senior economist with ATB Financial in Calgary.
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5 `( i4 y6 i3 g* [; |- @2 BIndustry players would say they have to account for transportation, marketing and other expenses - not to mention taxes, which vary from province to province.3 i6 k/ ]$ d/ h4 I5 s
: L B1 z/ q; Y: uBut 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."+ E% d6 T5 f. s( t! k
) O: k; H1 Q$ z* v1 hAnother explanation could be that the February contract for crude oil expires on Tuesday, and the contract for March is already significantly higher, settling at $42.57 on Friday.
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"(The oil companies) might have realized that while prices were low in the last couple of weeks, they knew that there was going to be a correction," Hirsch said." E/ M# x% i- m
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Hirsch expects pump prices to bounce between 60 and 90 cents per litre over the next few months, but not retesting the heights of last summer.
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"I'm not seeing a lot of strengthening in crude oil prices over the next six months," he said.3 x- @+ o* F8 _5 r/ @
5 k: G4 ~$ |7 J; b5 ~- }"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."2 l4 V X7 Z. U+ l2 S3 y" ~2 u8 J+ @
( V5 E k. D l$ ~0 z% h2 i7 r, I9 EBut 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.' p+ L8 q$ r% Y8 s" E
$ Y2 z6 h8 D: p4 x0 J% z1 |$ F"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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# {% K. ?% g9 I9 D7 W"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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