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Gas prices are rising while crude prices are falling. What gives?
- K1 y# |0 B' R# h' o6 C) t9 RPublished: Friday, January 16, 2009 | 5:11 PM ET
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9 G2 Y+ j J w5 b; C, I0 ]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.' ^5 W9 X+ s! j# ?% ?
( \! n2 t8 j9 B- u! hCalgarians were paying on average 81.5 cents per litre - about a four-cent jump in just one day.4 k3 P( C) v% W6 ^6 `, s( ?
6 O6 c \6 k6 L2 }! @, g; C"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.
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6 i. L' h" [$ r$ F. yBut Friday's price is still a welcome respite from the $1.40-level gas many Canadian cities faced during the summer.
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"I definitely changed my habits in the summer. I was going to go on two road trips, which I did not go on by virtue of the fact that the prices were so high," Lawnikanis said.
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"Because of the fact that the prices are so reasonable, I've actually taken the liberty to drive more. I've really enjoyed doing more driving."
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In Toronto Friday, pump prices were 80.9 cents per litre. On Thursday they were 79.4 and a week ago they were 74.2.
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% K$ c7 X+ e" p+ @6 G1 r4 b: ]Vancouver, which has higher gas taxes than other cities, has prices of 94.7 per litre, up from 87.5 a week ago./ t( t8 l5 H3 ^4 U
4 i# a* L+ d( o1 F% @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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6 E/ r0 O" F8 BThe February contract for crude oil settled at US$36.51 on the New York Mercantile Exchange, down from more than US$50 a barrel a week ago.
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"Crude oil is an important input into the distillation of gasoline. But there's a lot of other factors as well," said Todd Hirsch, senior economist with ATB Financial in Calgary.
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Industry players would say they have to account for transportation, marketing and other expenses - not to mention taxes, which vary from province to province.3 m* [3 @) e b2 j
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But those oil companies - private-sector players in a free-market system - also want to turn a profit.2 L g( d7 S# Y2 q
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"Without question those gasoline prices are going to be the highest they think they can get away with without their competitor undercutting them," said Hirsch.5 f: s* o# g2 S$ W- O! j
+ D+ J: W( C t8 r. Z5 o"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 $42.57 on Friday.
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"(The oil companies) might have realized that while prices were low in the last couple of weeks, they knew that there was going to be a correction," Hirsch said.
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Hirsch expects pump prices to bounce between 60 and 90 cents per litre over the next few months, but not retesting the heights of last summer.
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+ `5 Z, Z5 q9 H8 ?# I+ I"I'm not seeing a lot of strengthening in crude oil prices over the next six months," he said.6 A* x9 z$ f9 Q- f# u
: W2 {' x J) r- a# 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."3 }2 T7 z% A# a* D+ n
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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.6 h3 f$ N3 Q/ R/ ]
: n6 Q! x5 r* K; s5 v5 c! k"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.. Y: A) U" i& {& E# _' t/ I
# \( ^* ^. ^$ _, k& P ?"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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