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Gas prices are rising while crude prices are falling. What gives?
- w0 \9 A7 z% R- c& E4 MPublished: Friday, January 16, 2009 | 5:11 PM ET
3 V0 y; |, u$ JCanadian Press NewsItem/NewsComponent/NewsLines/ByLine
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- e' L7 I W6 C, [0 J- Z. T% rCALGARY - With crude oil prices falling, motorists may wonder why gasoline prices are heading in the other direction.
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" b' J i8 w4 P% s3 fThe 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." Y. v+ n$ A# a7 H7 Q; m
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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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, l8 d5 e7 ~- A( E) B% E! T"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.* K6 ^- @- D, S* H! h* V
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But Friday's price is still a welcome respite from the $1.40-level gas many Canadian cities faced during the summer.
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6 O" K' P+ E, J" Y+ v. q"I definitely changed my habits in the summer. I was going to go on two road trips, which I did not go on by virtue of the fact that the prices were so high," Lawnikanis said.5 r3 O$ F, Y/ |9 k/ n9 @" }+ c
( S. X( P7 Q9 A% m- x4 a"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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, }9 Z# i% l. c0 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., x/ f' v _' o( o/ s' x% p9 t- e
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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.
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The price of crude oil, the main ingredient in gasoline, has been dropping steeply since it's peak of $147 reached in July.1 L1 G1 t# z5 D, Q/ 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$50 a barrel a week ago.0 z1 g6 ^5 r1 ~. M q' c: {
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"Crude oil is an important input into the distillation of gasoline. But there's a lot of other factors as well," said Todd Hirsch, senior economist with ATB Financial in Calgary.
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+ Q7 e4 `) Q2 U; d! Z# Y, d; B% {Industry players would say they have to account for transportation, marketing and other expenses - not to mention taxes, which vary from province to province.
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But those oil companies - private-sector players in a free-market system - also want to turn a profit.
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"Without question those gasoline prices are going to be the highest they think they can get away with without their competitor undercutting them," said Hirsch.
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8 r( Y& h8 Z% \5 A$ {"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.") z0 z* D! h! n( B+ d9 {# \
1 I% c y' x' u P4 a& aAnother explanation could be that the February contract for crude oil expires on Tuesday, and the contract for March is already significantly higher, settling at $42.57 on Friday.
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+ \6 k1 C6 W; M: |+ Q) H"(The oil companies) might have realized that while prices were low in the last couple of weeks, they knew that there was going to be a correction," Hirsch said.$ i& d7 w! P0 }9 Y6 Z
+ K! _! E: s: Q. |3 fHirsch 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.8 B7 X D: c6 m" o% a$ }9 m
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"I'm not seeing a lot of strengthening in crude oil prices over the next six months," he said.2 J1 C8 X8 s2 D
- @9 p. M, Q! L: Q4 q, ["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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7 z- h1 M R% H7 H8 A9 {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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# z& x0 W9 d8 l, P$ w"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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