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Gas prices are rising while crude prices are falling. What gives?
5 x& u* W9 B2 ePublished: Friday, January 16, 2009 | 5:11 PM ET* W5 y. z* r6 |+ M
Canadian Press NewsItem/NewsComponent/NewsLines/ByLine6 e/ E7 g" M( p y T/ P
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CALGARY - With crude oil prices falling, motorists may wonder why gasoline prices are heading in the other direction.$ v& p: k% x4 @# v
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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.. ?. F( g$ \6 e9 X' d
% F7 R+ Y* x1 BCalgarians were paying on average 81.5 cents per litre - about a four-cent jump in just one day.7 [" g7 V' m( c: k% I6 l, t5 F! l
/ U# q& T% G9 G" I% b h* w E"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.3 Q1 f9 ~6 r4 I8 a. L( y
# N, |5 c. u& LBut Friday's price is still a welcome respite from the $1.40-level gas many Canadian cities faced during the summer.! s1 m8 \" U, a9 v0 `
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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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2 p6 O* o( x0 V( d" q"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."/ n1 E+ \! P0 S: K! k; n
# \1 w, C: D' K0 Y' w7 FIn Toronto Friday, pump prices were 80.9 cents per litre. On Thursday they were 79.4 and a week ago they were 74.2.2 `# m/ d3 d6 O( r, f
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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.+ Y9 y1 k2 Q1 I; z1 w; t
5 c5 ]+ V% i4 g4 {! WThe 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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1 ^2 O1 `* D: S QThe February contract for crude oil settled at US$36.51 on the New York Mercantile Exchange, down from more than US$50 a barrel a week ago.1 d$ g2 a$ e$ h' }3 P7 I* {
- X- I. x4 x. ?9 K! U& M"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.$ u" c2 Q3 X# R+ Z9 J
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But those oil companies - private-sector players in a free-market system - also want to turn a profit./ @; o, ?" V* W
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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.
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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."
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6 u: Y/ y9 d& f/ kAnother explanation could be that the February contract for crude oil expires on Tuesday, and the contract for March is already significantly higher, settling at $42.57 on Friday.7 ]: ]0 p+ G) W
. I" F. S- } k+ ^& E. ^"(The oil companies) might have realized that while prices were low in the last couple of weeks, they knew that there was going to be a correction," Hirsch said.& \3 y) |$ |4 b6 ?- g: B
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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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"I'm not seeing a lot of strengthening in crude oil prices over the next six months," he said.
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. e3 K. F C/ y: `* J"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.3 H! I6 b& `+ Z" u! `9 J! {; I
" ^( {, @0 l. G, T* a; a"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.3 b2 W7 l; S. ~
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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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