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Gas prices are rising while crude prices are falling. What gives?
. ]) V; [$ U ?9 @Published: Friday, January 16, 2009 | 5:11 PM ET
$ H4 P4 {( P R W$ lCanadian Press NewsItem/NewsComponent/NewsLines/ByLine( y$ ]/ |* }+ r4 N$ c
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CALGARY - With crude oil prices falling, motorists may wonder why gasoline prices are heading in the other direction.4 R+ N5 ^' l, i/ ]1 b5 F, \
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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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$ s& F1 ^8 ^. Y; a6 bCalgarians 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. ^/ o$ P1 e4 [/ z$ Q
, C, f, t9 i) j$ Y- aBut Friday's price is still a welcome respite from the $1.40-level gas many Canadian cities faced during the summer.
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8 ^: {9 m: q& |) D( S"I definitely changed my habits in the summer. I was going to go on two road trips, which I did not go on by virtue of the fact that the prices were so high," Lawnikanis said.4 i- n9 k. D$ |- X' P3 ~* j
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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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! G) A! w; B* T$ C) m7 jIn Toronto Friday, pump prices were 80.9 cents per litre. On Thursday they were 79.4 and a week ago they were 74.2.+ j' n( d3 B; p/ l. w$ j
& G ~. P* X& XVancouver, 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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! V% _' r" ?+ T" v* QThe price of crude oil, the main ingredient in gasoline, has been dropping steeply since it's peak of $147 reached in July.0 u. M; e: V$ G+ x
9 d* r" W6 G& ~6 W# d5 c. M8 nThe February contract for crude oil settled at US$36.51 on the New York Mercantile Exchange, down from more than US$50 a barrel a week ago.
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"Crude oil is an important input into the distillation of gasoline. But there's a lot of other factors as well," said Todd Hirsch, senior economist with ATB Financial in Calgary.3 b# X N) V4 N, k6 y0 F) h, P
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Industry players would say they have to account for transportation, marketing and other expenses - not to mention taxes, which vary from province to province.
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But those oil companies - private-sector players in a free-market system - also want to turn a profit.$ A; L" A8 c( `2 {
/ O4 c, v5 R1 V2 w5 `"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.") g: i, B1 U, m) }4 S. E# H
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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.
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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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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.2 l" `' D- u& H% X# z) |3 t
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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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"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.+ s4 l* \. Q& U" K8 I
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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., ^+ T4 o4 Q) Z& M1 f
5 Q4 r& b& @5 [, ~' z( N- ?% i"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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