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Gas prices are rising while crude prices are falling. What gives?
/ `% J2 h' B' e& v3 jPublished: Friday, January 16, 2009 | 5:11 PM ET+ M" K* S# f* b s" C
Canadian Press NewsItem/NewsComponent/NewsLines/ByLine6 B( {' U, B) @0 P
6 _* W! z! n; c" a6 GCALGARY - With crude oil prices falling, motorists may wonder why gasoline prices are heading in the other direction.3 e/ }8 G( F1 Y- G
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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.' c9 D7 ?$ x& D
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Calgarians were paying on average 81.5 cents per litre - about a four-cent jump in just one day.5 z9 h1 O2 W. I7 ]( Y8 @
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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.) d7 [! f1 o, m
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But Friday's price is still a welcome respite from the $1.40-level gas many Canadian cities faced during the summer.+ m! [( q l. Z) @6 b5 e
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"I definitely changed my habits in the summer. I was going to go on two road trips, which I did not go on by virtue of the fact that the prices were so high," Lawnikanis said.7 u( _9 Y ^' ^ U# E
0 ]! {5 T& w) f# E2 F l"Because of the fact that the prices are so reasonable, I've actually taken the liberty to drive more. I've really enjoyed doing more driving."
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In Toronto Friday, pump prices were 80.9 cents per litre. On Thursday they were 79.4 and a week ago they were 74.2.
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0 A1 o" R# l9 j7 b) ZVancouver, which has higher gas taxes than other cities, has prices of 94.7 per litre, up from 87.5 a week ago.5 h3 r+ |$ R) |0 @4 I
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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.
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* D9 L5 R. C- K6 ~The February contract for crude oil settled at US$36.51 on the New York Mercantile Exchange, down from more than US$50 a barrel a week ago.; W9 w2 u" f! R) a# N
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"Crude oil is an important input into the distillation of gasoline. But there's a lot of other factors as well," said Todd Hirsch, senior economist with ATB Financial in Calgary.
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Industry players would say they have to account for transportation, marketing and other expenses - not to mention taxes, which vary from province to province./ W. N7 ?1 g1 a
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But those oil companies - private-sector players in a free-market system - also want to turn a profit.
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) [( l) g6 A S"Without question those gasoline prices are going to be the highest they think they can get away with without their competitor undercutting them," said Hirsch.! T1 t8 b9 H4 C
( a$ K' a1 u4 `, [# w"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."2 j: v$ `3 {: S3 ?' c" b
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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 $42.57 on Friday. V2 T+ D. L" O( j& n
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"(The oil companies) might have realized that while prices were low in the last couple of weeks, they knew that there was going to be a correction," Hirsch said.& U4 D0 }0 v. e! u1 @2 v; T! R& G
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Hirsch expects pump prices to bounce between 60 and 90 cents per litre over the next few months, but not retesting the heights of last summer.
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+ \8 I+ Z( b) o* X* R9 `"I'm not seeing a lot of strengthening in crude oil prices over the next six months," he said.6 g' s* w2 v$ C
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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."- s7 g' i2 a+ D" G" }2 p2 _7 P
% b1 f( O! P3 r/ J1 i7 L% q3 NBut 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.* n+ Q- K; N% u: k+ K* l9 \
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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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7 U+ n4 Y/ {1 t% q* b/ H"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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