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Gas prices are rising while crude prices are falling. What gives?
+ C) X% S3 ?7 Q% APublished: 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.& u ~2 U) `* i: v9 g; F3 O
/ k+ X" O' X' L% `6 s. o0 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.; P1 W* e$ e9 G- W
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Calgarians were paying on average 81.5 cents per litre - about a four-cent jump in just one day.$ C6 O* @$ Y8 \/ D' f7 Z/ H4 \
: H# a) p3 |5 F7 Y. {"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.) [- Z4 P; z' S3 X/ S# [/ A* s: T# l
8 r: G; ^/ Y7 YBut Friday's price is still a welcome respite from the $1.40-level gas many Canadian cities faced during the summer.
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"I definitely changed my habits in the summer. I was going to go on two road trips, which I did not go on by virtue of the fact that the prices were so high," Lawnikanis said.# [ n% P) y' I# \; i) p
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"Because of the fact that the prices are so reasonable, I've actually taken the liberty to drive more. I've really enjoyed doing more driving."
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$ o9 W) [" N# bIn 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.
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- S8 |* N" p5 C0 dThe price of crude oil, the main ingredient in gasoline, has been dropping steeply since it's peak of $147 reached in July.7 e* {% Q7 o1 O( g& K x
1 o3 N& x6 o7 Y. Q3 dThe February contract for crude oil settled at US$36.51 on the New York Mercantile Exchange, down from more than US$50 a barrel a week ago.9 L* x* M4 J" E) y$ Y5 h
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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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- \ d. F( l# S# O# u$ ]Industry players would say they have to account for transportation, marketing and other expenses - not to mention taxes, which vary from province to province.* a; K; @' V# e* c- o
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But those oil companies - private-sector players in a free-market system - also want to turn a profit.1 ]& a; T' b2 ^# k! p
+ g* P0 I7 |! }2 L$ i { ?"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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8 H: ?- i5 |* B# S" N# Y9 `3 v"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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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 $42.57 on Friday.; d# o0 @: ?8 u8 T
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"(The oil companies) might have realized that while prices were low in the last couple of weeks, they knew that there was going to be a correction," Hirsch said.* R8 h4 E* X. t+ F9 f$ K
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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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" q' v' h( r$ {2 K"I'm not seeing a lot of strengthening in crude oil prices over the next six months," he said.% n, y' l n! i' O2 l
$ V1 T, V! n. d. C% T H/ m"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."0 ?2 w, L7 l5 l2 i1 c
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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.7 H/ M/ K: u' J6 P
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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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1 F3 Q; K! I: E' Q8 c% M"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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