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Gas prices are rising while crude prices are falling. What gives?
9 C8 B, D8 e3 U' {1 \Published: Friday, January 16, 2009 | 5:11 PM ET
- Y* H# L2 {8 G, dCanadian 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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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.! V' ^7 I( W- ? v& u
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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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"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.0 o: H7 ]1 |0 X& c" d, t6 U& A9 ?
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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.3 D/ ]0 g3 ~- B1 j3 e
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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., T5 e" {6 K/ x: a7 c/ f+ z
) w0 p* b( V9 ~0 K& \6 E4 w"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.": d1 z7 q5 v" h6 s8 I& G
. T0 z V5 ?# r8 G! ]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.! c' `+ `; E5 ]! B% l5 \0 y, {9 N
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The price of crude oil, the main ingredient in gasoline, has been dropping steeply since it's peak of $147 reached in July.+ `+ [) T; w$ C
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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$50 a barrel a week ago.
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"Crude oil is an important input into the distillation of gasoline. But there's a lot of other factors as well," said Todd Hirsch, senior economist with ATB Financial in Calgary.$ p6 R) \8 t) D
; V, Q2 u8 f/ Z5 RIndustry 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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' ^3 ^4 h: e) X) jBut those oil companies - private-sector players in a free-market system - also want to turn a profit.
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- V A& u! g- [% B6 P"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.: n0 X7 V- G. O8 o
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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."4 [) n } p% W7 p+ j' p( R" y
5 U+ i3 l2 F$ F& c1 X2 JAnother explanation could be that the February contract for crude oil expires on Tuesday, and the contract for March is already significantly higher, settling at $42.57 on Friday.9 H3 d% s& ?" o
2 [4 R7 y5 n" z$ \, n"(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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, z; w; n! V7 [9 LHirsch 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 k% V" e: J6 ^' v6 v1 O"I'm not seeing a lot of strengthening in crude oil prices over the next six months," he said.3 E* Q* e# g' {
% F( k& J, B6 r1 A% b"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."# A- _. s0 _) U1 _3 ], H d) R
# _' E- F5 l3 O7 x7 HBut 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.5 {' F& t; D. a: t9 w3 Z [( b. }- A; |
( ]0 b; r8 W2 g3 e& z) d+ ["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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