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Gas prices are rising while crude prices are falling. What gives?
; O& \6 g& i6 y& V) O- P; o9 w/ }1 J- IPublished: Friday, January 16, 2009 | 5:11 PM ET
4 u3 H5 E# N% E$ K6 g. v K! ICanadian Press NewsItem/NewsComponent/NewsLines/ByLine* T6 _$ Q% ?# X
+ m; u$ i* v8 D- E! y8 ECALGARY - With crude oil prices falling, motorists may wonder why gasoline prices are heading in the other direction./ y, K9 X0 @' h( c: a# g7 _
; `6 u1 I, \* ^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.
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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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"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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2 Y; v" }, H5 LBut Friday's price is still a welcome respite from the $1.40-level gas many Canadian cities faced during the summer.
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! E9 N2 o, G/ x6 Z; `: @7 N6 c/ w"I definitely changed my habits in the summer. I was going to go on two road trips, which I did not go on by virtue of the fact that the prices were so high," Lawnikanis said.0 I$ g5 u6 j% @$ D6 V8 G: m
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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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( V- m0 F6 U8 Q5 mIn 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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' y$ j/ l! k8 J: |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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2 x) g& T- B8 fThe price of crude oil, the main ingredient in gasoline, has been dropping steeply since it's peak of $147 reached in July.
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, U d0 Y, W: e8 Y, N$ aThe February contract for crude oil settled at US$36.51 on the New York Mercantile Exchange, down from more than US$50 a barrel a week ago.4 b# S( x! z B
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"Crude oil is an important input into the distillation of gasoline. But there's a lot of other factors as well," said Todd Hirsch, senior economist with ATB Financial in Calgary.
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, H/ x& u H' _3 i$ x( ^. AIndustry 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.2 c5 `( \3 t/ o9 |
7 _7 e3 F0 Z. x. p* k, R"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.( @# r. K9 v4 W/ I7 z
+ \" `& O8 F: |& f8 {" x" k& _"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 $42.57 on Friday.* T3 v6 G5 i9 p& K" D6 h1 Z
% G) R A7 o% t1 i. Y q! ^2 Y"(The oil companies) might have realized that while prices were low in the last couple of weeks, they knew that there was going to be a correction," Hirsch said.
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Hirsch expects pump prices to bounce between 60 and 90 cents per litre over the next few months, but not retesting the heights of last summer.
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+ x1 W6 ]& ]3 x$ B) k) l! b( _, y2 K"I'm not seeing a lot of strengthening in crude oil prices over the next six months," he said.
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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."/ r" F: M/ B$ C, o, T+ }
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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.' I! j7 P% R) ]( {
8 @4 x1 C% R2 u"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.6 q+ i1 u: ]3 {( ~/ b; Q7 D# W
: u: G( q" F6 G* g9 @1 N3 n, R& o"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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