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Gas prices are rising while crude prices are falling. What gives?# K+ i/ u6 b; m% P, n9 S% W
Published: 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.
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. q$ {! f. a9 b( G8 ~* _5 `7 t+ hThe 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.- Y+ D8 x3 @/ `; A& W* B$ h
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Calgarians were paying on average 81.5 cents per litre - about a four-cent jump in just one day.; O; G( R$ [8 F! d7 m! F
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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./ Y$ D7 P: ]! u6 P
" j( l4 G% D- e" QBut Friday's price is still a welcome respite from the $1.40-level gas many Canadian cities faced during the summer.
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- d% Y9 j+ Q: ]+ T"I definitely changed my habits in the summer. I was going to go on two road trips, which I did not go on by virtue of the fact that the prices were so high," Lawnikanis said.
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"Because of the fact that the prices are so reasonable, I've actually taken the liberty to drive more. I've really enjoyed doing more driving."
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% J8 S" A1 p e7 p# ~In Toronto Friday, pump prices were 80.9 cents per litre. On Thursday they were 79.4 and a week ago they were 74.2.. H, O% h! ?! ` U
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Vancouver, which has higher gas taxes than other cities, has prices of 94.7 per litre, up from 87.5 a week ago.4 a# l$ P7 @& 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.
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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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' ^8 a0 J' }8 b9 Y5 G- W; i# \"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.
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But those oil companies - private-sector players in a free-market system - also want to turn a profit.+ K1 ]8 w# n; T+ c' n
& W4 ]( E- F0 Z3 U: j0 L6 q0 f"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.; W* z9 u7 S: a1 R4 r+ y+ Y
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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."9 A. D; g6 K. w- |% w& U9 G% j
1 A2 j& t0 j- j+ O- ZAnother explanation could be that the February contract for crude oil expires on Tuesday, and the contract for March is already significantly higher, settling at $42.57 on Friday./ O4 V9 x/ i* }. }1 [
' h. _5 P$ o" ?& O$ W5 x+ X+ r* h"(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./ J' _$ ^3 f2 l; r
+ M" x/ U+ V: B! @' J& vHirsch 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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; F( ^- g% g/ O7 l% M"I'm not seeing a lot of strengthening in crude oil prices over the next six months," he said.
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8 R4 k5 d" \; V& f"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.' |( t. Z9 G& C; x9 C* U* C/ u
2 M( p7 P+ F, p3 S& y"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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( S9 S6 Q8 H- N9 K8 N! T"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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