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Gas prices are rising while crude prices are falling. What gives?
. t0 }: h* V& A) BPublished: Friday, January 16, 2009 | 5:11 PM ET$ [9 b& i& {; `; @4 M; y
Canadian Press NewsItem/NewsComponent/NewsLines/ByLine- M: j, \+ Z3 ^2 B
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CALGARY - With crude oil prices falling, motorists may wonder why gasoline prices are heading in the other direction.
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- ~5 q% D" l0 _* v) n: H; PThe 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.# U; Y5 p4 z# Q! g5 W* @ N
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Calgarians were paying on average 81.5 cents per litre - about a four-cent jump in just one day., b2 B% g2 C2 c9 V. ?7 ]
* r) l( }1 O) s& r9 \) g* h"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.$ k1 ]% _ y1 i4 }( j) ^! J
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But Friday's price is still a welcome respite from the $1.40-level gas many Canadian cities faced during the summer.
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- G# N2 T; w: D( K6 x9 B+ h/ K"I definitely changed my habits in the summer. I was going to go on two road trips, which I did not go on by virtue of the fact that the prices were so high," Lawnikanis said.
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"Because of the fact that the prices are so reasonable, I've actually taken the liberty to drive more. I've really enjoyed doing more driving."0 H& N9 g6 w7 ~8 B' M4 }1 F/ y
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In Toronto Friday, pump prices were 80.9 cents per litre. On Thursday they were 79.4 and a week ago they were 74.2.+ U, z$ N1 J( S; W! s$ O) _
X+ f: C8 n9 z! WVancouver, 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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/ D8 q' J1 C* |' }# |, JThe price of crude oil, the main ingredient in gasoline, has been dropping steeply since it's peak of $147 reached in July.2 p: o6 X; W+ P1 P: D
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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.9 a) `) ]5 z: v
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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.
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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.& o) Q8 p: n& o/ L
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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.4 k, o4 E# H9 u4 o. E' r
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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.% j( Z* ]/ x7 n' n4 X/ a
5 l; {9 A1 K- cHirsch 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.' s6 N3 F- b1 F& ]
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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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4 S W4 [) {& ?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.0 i! h2 N+ u7 h3 \8 G' t7 K5 N7 }% x, X
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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.6 U V! m) a+ [5 @ t
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"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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