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Gas prices are rising while crude prices are falling. What gives?
3 `: v1 T* R2 G; X' ]- g cPublished: Friday, January 16, 2009 | 5:11 PM ET/ R% `/ v: b3 b1 K2 E* A
Canadian Press NewsItem/NewsComponent/NewsLines/ByLine& d4 S; b' Q$ {
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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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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.6 W' ?( ?5 B: t7 N+ U6 ?0 M
% k+ c: S- i( K" Y' B; ]"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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But Friday's price is still a welcome respite from the $1.40-level gas many Canadian cities faced during the summer.* s1 e; W: x2 k) \
1 n& E3 u ?# t n& {; v"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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/ h! d, ?7 `8 U" ?4 zVancouver, which has higher gas taxes than other cities, has prices of 94.7 per litre, up from 87.5 a week ago.: D4 T) O1 L1 V1 ]7 ~- b; D6 A5 y
# U8 y3 f0 Z0 T' }' }/ W1 T. wThe price of crude oil, the main ingredient in gasoline, has been dropping steeply since it's peak of $147 reached in July.! M. N0 o" b* j* D8 P" u
" A1 r' f: R: m: r4 V* xThe February contract for crude oil settled at US$36.51 on the New York Mercantile Exchange, down from more than US$50 a barrel a week ago.
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"Crude oil is an important input into the distillation of gasoline. But there's a lot of other factors as well," said Todd Hirsch, senior economist with ATB Financial in Calgary.
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- _% P( u7 ?4 ]9 k0 uIndustry players would say they have to account for transportation, marketing and other expenses - not to mention taxes, which vary from province to province.! {' S& {! Z- B9 n! N
q7 O9 h' O3 ]) Q/ N/ o* dBut those oil companies - private-sector players in a free-market system - also want to turn a profit.
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"Without question those gasoline prices are going to be the highest they think they can get away with without their competitor undercutting them," said Hirsch.. e, ?* T1 X. Y v: z
3 s/ X6 B& ~6 X {6 B# n"They're out to maximize their profits for their shareholders. I don't think there's anything evil going on in them trying to get the highest price. Every retailer in the country does this."$ w, M. _" w, k, t4 x2 E) ^
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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.! L2 ]7 m0 L' f1 Q* k( 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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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.) b6 [1 Z; |6 i/ C T
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"I'm not seeing a lot of strengthening in crude oil prices over the next six months," he said.2 g' F X- i' T3 ~
; j, M) r! ]/ q; |! D"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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7 n1 a. n( Q3 ^% p% g# y) U6 LBut 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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