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Gas prices are rising while crude prices are falling. What gives?
# |9 n( g' u8 vPublished: Friday, January 16, 2009 | 5:11 PM ET2 i; b; B+ [( D1 F" }9 \
Canadian Press NewsItem/NewsComponent/NewsLines/ByLine
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: Z9 |* j* R _; s7 `CALGARY - With crude oil prices falling, motorists may wonder why gasoline prices are heading in the other direction.! c. m* O* {7 M/ N. o
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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.. U$ @/ c4 |0 T
& a0 U% T' @0 V6 _1 r* a: q# ^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.$ R% D' C+ @ o+ e
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But Friday's price is still a welcome respite from the $1.40-level gas many Canadian cities faced during the summer.7 Z2 i; m7 `9 F3 w- N" A3 @' T. `
3 a7 k3 S% f( I* A. @- o# j: r"I definitely changed my habits in the summer. I was going to go on two road trips, which I did not go on by virtue of the fact that the prices were so high," Lawnikanis said.
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"Because of the fact that the prices are so reasonable, I've actually taken the liberty to drive more. I've really enjoyed doing more driving."# l+ S4 |5 w5 d: f( o
! {* ?7 N$ \5 `5 Y7 P; N; |" NIn Toronto Friday, pump prices were 80.9 cents per litre. On Thursday they were 79.4 and a week ago they were 74.2. ?: v9 c k, a
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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.1 S8 a' b$ t; J; z2 O
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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! X8 o2 Y. A: a) N/ @- {
# v Y0 o. m* s( l! k0 l. @# OThe February contract for crude oil settled at US$36.51 on the New York Mercantile Exchange, down from more than US$50 a barrel a week ago.
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% R$ }8 X- _) ^* Q, m1 E"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." |# D2 w7 C* E0 K
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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.8 ]/ U7 V! \( N) S8 s3 ], b: c# v
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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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G9 E5 {4 M+ `* v; 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 $42.57 on Friday.$ K5 T' Y2 k( J
2 F: s+ F2 d R7 y2 o"(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.
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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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"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."9 @, j0 e# C# | I8 B$ \
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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.( O3 d! f9 z S. H3 Y9 V
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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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