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Gas prices are rising while crude prices are falling. What gives?6 r8 q% R1 Z/ t" W! X m n+ l3 Q+ r
Published: Friday, January 16, 2009 | 5:11 PM ET) d7 A3 U w' H& X; g
Canadian Press NewsItem/NewsComponent/NewsLines/ByLine
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' A0 h" U% }7 h s! e+ \/ s& hCALGARY - With crude oil prices falling, motorists may wonder why gasoline prices are heading in the other direction.
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6 F: E4 d8 w% P4 }4 DThe 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.
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Calgarians were paying on average 81.5 cents per litre - about a four-cent jump in just one day. s$ G9 |8 m; }; i9 A8 s5 b, `
( w1 b# S1 I' ~"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# C3 y. Y, H
9 t# d O9 E: v# xBut Friday's price is still a welcome respite from the $1.40-level gas many Canadian cities faced during the summer., m3 a2 F, u2 b) b' s
& D6 W5 p0 Z: [' }* ^' o"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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' `0 [0 r9 s- UIn Toronto Friday, pump prices were 80.9 cents per litre. On Thursday they were 79.4 and a week ago they were 74.2. e/ x6 d' k! s D" P8 W' Y. T
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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." ]& `3 X. t7 J' K
& r0 i3 z" N, RThe price of crude oil, the main ingredient in gasoline, has been dropping steeply since it's peak of $147 reached in July.9 s8 T+ a+ F* o* N% E0 @* S0 G
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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$50 a barrel a week ago.
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- z) F, D9 P7 O4 D3 n) G"Crude oil is an important input into the distillation of gasoline. But there's a lot of other factors as well," said Todd Hirsch, senior economist with ATB Financial in Calgary.
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Industry players would say they have to account for transportation, marketing and other expenses - not to mention taxes, which vary from province to province.
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But those oil companies - private-sector players in a free-market system - also want to turn a profit.4 S$ @% N( q7 x
& R- c) N% `4 U! H; I5 m"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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; z- n3 R/ J& i"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."& c$ w( V6 G9 u
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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 $42.57 on Friday.
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% ~0 u+ L" T8 O% `"(The oil companies) might have realized that while prices were low in the last couple of weeks, they knew that there was going to be a correction," Hirsch said.
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Hirsch expects pump prices to bounce between 60 and 90 cents per litre over the next few months, but not retesting the heights of last summer.
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& X" S6 x3 S5 X4 k. r# c"I'm not seeing a lot of strengthening in crude oil prices over the next six months," he said.: ^: }& o7 ?$ h1 K
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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."
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2 u0 o3 |3 s+ b( j0 z9 a! k0 XBut 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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/ P1 v! ^+ Z* V( U; I) F"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.$ j' C Z( p" W
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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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