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Gas prices are rising while crude prices are falling. What gives?
( }' g4 O2 W! F! @5 P7 KPublished: Friday, January 16, 2009 | 5:11 PM ET7 T% i2 O7 s5 f* q
Canadian Press NewsItem/NewsComponent/NewsLines/ByLine
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5 T8 T7 k& O4 C9 S. }6 q, ?CALGARY - With crude oil prices falling, motorists may wonder why gasoline prices are heading in the other direction.: j, @2 n7 S2 {! l! [1 l: O) h
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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.
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Calgarians were paying on average 81.5 cents per litre - about a four-cent jump in just one day.6 C) }* D4 a x: p9 T
* Q) a9 W7 f- X/ C4 Z" ["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 ^; {+ H5 R9 G' ]
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But Friday's price is still a welcome respite from the $1.40-level gas many Canadian cities faced during the summer.
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"I definitely changed my habits in the summer. I was going to go on two road trips, which I did not go on by virtue of the fact that the prices were so high," Lawnikanis said.
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"Because of the fact that the prices are so reasonable, I've actually taken the liberty to drive more. I've really enjoyed doing more driving."
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In Toronto Friday, pump prices were 80.9 cents per litre. On Thursday they were 79.4 and a week ago they were 74.2.
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Vancouver, which has higher gas taxes than other cities, has prices of 94.7 per litre, up from 87.5 a week ago." k- y8 l( K8 `/ P; ?& h
# F3 v7 J$ R, c% G0 `8 F# `2 iThe price of crude oil, the main ingredient in gasoline, has been dropping steeply since it's peak of $147 reached in July.1 j/ ~+ d* Y+ f" [- c1 B( s0 A
: [* v: V+ @( ^7 g6 {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.+ l+ @5 Y" Y r; {, L
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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./ f, i8 O2 t9 ~- h. D
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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.0 |. r1 t8 |* {; D2 K
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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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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 $42.57 on Friday., v; K4 R5 A3 m: k" B( X! `
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"(The oil companies) might have realized that while prices were low in the last couple of weeks, they knew that there was going to be a correction," Hirsch said.
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1 o$ N b; y) o- U% L1 e" |' lHirsch 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.7 S) t$ Q, m" p1 b9 q
9 G/ b% u q3 a. U, k4 T$ W7 E"I'm not seeing a lot of strengthening in crude oil prices over the next six months," he said.
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( d1 j* {0 m4 j) i) G0 C8 B"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 n' ~, @# |! j/ gBut 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.( }4 Z5 {* {! x4 l" @
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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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+ |3 M" z; Z/ ~"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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