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Gas prices are rising while crude prices are falling. What gives?
2 @: w4 ?. p# }' h+ I4 f1 lPublished: Friday, January 16, 2009 | 5:11 PM ET" [4 {) F7 k9 h* G3 C8 s
Canadian Press NewsItem/NewsComponent/NewsLines/ByLine2 O$ O( m; L2 g; {0 U
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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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2 V# b8 b: i3 s1 D8 P8 kThe 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.' X5 d# W9 K# {7 j+ e
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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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, T6 J, S9 I' _7 I! j# h: j/ X" ]( m. N"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.4 Z: j l1 N- F7 a/ x) J1 `" x# x
! j. i* F5 c hBut Friday's price is still a welcome respite from the $1.40-level gas many Canadian cities faced during the summer.
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"I definitely changed my habits in the summer. I was going to go on two road trips, which I did not go on by virtue of the fact that the prices were so high," Lawnikanis said.4 j& p" o6 p/ \
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"Because of the fact that the prices are so reasonable, I've actually taken the liberty to drive more. I've really enjoyed doing more driving."" S& L5 j, i6 {
6 `3 x" w( [% t7 y eIn Toronto Friday, pump prices were 80.9 cents per litre. On Thursday they were 79.4 and a week ago they were 74.2.3 F! D# m2 f6 @4 v
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Vancouver, which has higher gas taxes than other cities, has prices of 94.7 per litre, up from 87.5 a week ago.- F" H" x0 `/ a$ k
5 ~+ `5 ?- |* E J# ZThe 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$50 a barrel a week ago.. H# }: |6 H: k' k
) I) v$ P8 Y4 g"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.0 ?4 q& K* }$ k6 D3 u
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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.
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3 R0 W0 O6 ~2 G"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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"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."% M& H0 S8 {8 F" U7 k& c9 H
0 N% w) I3 C- r4 D, ]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 $42.57 on Friday.
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"(The oil companies) might have realized that while prices were low in the last couple of weeks, they knew that there was going to be a correction," Hirsch said.
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2 `0 X* {; b8 I' ]* R+ YHirsch expects pump prices to bounce between 60 and 90 cents per litre over the next few months, but not retesting the heights of last summer.
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! z9 {* P* ]$ ]/ T. Y% E3 @6 X `"I'm not seeing a lot of strengthening in crude oil prices over the next six months," he said.% }! t) A' \6 [( E, ~7 T
9 F+ F9 w8 O, @"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."" q2 [ A! B" O% T0 `
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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.
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J4 |' B* A+ ]- @! X9 _9 {! Q( m( ?"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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