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Gas prices are rising while crude prices are falling. What gives?5 J% `; k2 I! q* R5 @$ o3 c1 @ I
Published: Friday, January 16, 2009 | 5:11 PM ET- s2 z! L% y5 ]" L% e4 v% W5 L
Canadian Press NewsItem/NewsComponent/NewsLines/ByLine. K* S( L6 D: E
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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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3 s* L' E6 p# P9 T a& u# \& s* N8 gThe 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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% `$ q4 _9 E4 ~0 b4 d) v, |5 ~5 h4 @Calgarians were paying on average 81.5 cents per litre - about a four-cent jump in just one day.7 N+ L2 O0 H; N4 W# C, l* @8 o
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"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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But Friday's price is still a welcome respite from the $1.40-level gas many Canadian cities faced during the summer.. p, |6 M; j9 F& ?( j- T2 v) q p4 i
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"I definitely changed my habits in the summer. I was going to go on two road trips, which I did not go on by virtue of the fact that the prices were so high," Lawnikanis said.7 [4 V: F; ~* e- t
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"Because of the fact that the prices are so reasonable, I've actually taken the liberty to drive more. I've really enjoyed doing more driving."5 e$ |! `. z- Z
6 R) j2 [) @' M) ]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. E1 P' R! g Z, f3 } l
6 V/ P- b. _" zVancouver, which has higher gas taxes than other cities, has prices of 94.7 per litre, up from 87.5 a week ago.% F7 q- v7 q5 H1 r, v1 S9 J; q
# }+ V7 d8 N/ P8 b8 aThe price of crude oil, the main ingredient in gasoline, has been dropping steeply since it's peak of $147 reached in July.1 J z. G7 h7 H6 V3 X2 Z+ _$ H
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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$50 a barrel a week ago.
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"Crude oil is an important input into the distillation of gasoline. But there's a lot of other factors as well," said Todd Hirsch, senior economist with ATB Financial in Calgary.
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Industry players would say they have to account for transportation, marketing and other expenses - not to mention taxes, which vary from province to province.
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! m9 p H: L4 E0 V" LBut those oil companies - private-sector players in a free-market system - also want to turn a profit.8 X4 y- x/ M' W# }8 N
_0 D: ~- p1 T5 c"Without question those gasoline prices are going to be the highest they think they can get away with without their competitor undercutting them," said Hirsch.; L7 p, L1 y* U! l1 D7 A8 \
, d5 c/ N3 O. k% n9 H N( {' E3 q"They're out to maximize their profits for their shareholders. I don't think there's anything evil going on in them trying to get the highest price. Every retailer in the country does this."
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$ b. \1 ^, ~2 _# e* P8 hAnother 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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% q7 W. v4 `4 K- u5 |"(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.5 B! u4 @4 J5 o6 h3 I5 C
' }9 K) l: Y7 C. wHirsch 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.; G9 s. Q; x8 `- E
* r: K2 Q! [/ F7 J& j) [& K"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.
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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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% K B' h! W! j, `6 y1 ~/ f0 f"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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