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Gas prices are rising while crude prices are falling. What gives?0 [0 t9 o" i4 u+ C: Z7 I' y1 ]
Published: Friday, January 16, 2009 | 5:11 PM ET
! R: Z% D2 F, l. D9 d2 tCanadian Press NewsItem/NewsComponent/NewsLines/ByLine
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CALGARY - With crude oil prices falling, motorists may wonder why gasoline prices are heading in the other direction. f R4 l9 f% c2 F8 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.7 D9 b; M* v3 K0 t% ?- y
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Calgarians were paying on average 81.5 cents per litre - about a four-cent jump in just one day.4 w; m# o$ Q' d$ E1 q9 D4 s2 e
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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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5 l6 ]) m+ {6 D# o `( l( K' n4 UBut Friday's price is still a welcome respite from the $1.40-level gas many Canadian cities faced during the summer.+ f" R+ t8 B) @8 e4 E! x
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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.! y4 G/ [+ ?! @ A& ?, |
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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."% `. \; H0 F) V4 o+ w7 ]
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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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. v' X! _# F5 ^. j3 ~" W kVancouver, 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 t1 p/ v- }# G( [; V5 bThe 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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The February contract for crude oil settled at US$36.51 on the New York Mercantile Exchange, down from more than US$50 a barrel a week ago.
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"Crude oil is an important input into the distillation of gasoline. But there's a lot of other factors as well," said Todd Hirsch, senior economist with ATB Financial in Calgary.
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4 j- D4 n D9 j( j5 TIndustry players would say they have to account for transportation, marketing and other expenses - not to mention taxes, which vary from province to province./ n1 p' M2 {& ~$ {
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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.
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: v/ e) ?; w! D"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."( e. s' b! I- e# ^( E r
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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 $42.57 on Friday.
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& I" {! ?2 l4 u# G, Q1 t"(The oil companies) might have realized that while prices were low in the last couple of weeks, they knew that there was going to be a correction," Hirsch said.
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, G9 b7 F, ?% }; n; l7 ^Hirsch expects pump prices to bounce between 60 and 90 cents per litre over the next few months, but not retesting the heights of last summer.3 ]9 D9 B( a& r( R$ \
$ \5 b3 `2 e# D* y+ Q! ["I'm not seeing a lot of strengthening in crude oil prices over the next six months," he said.# g# e* J8 T2 _- ~# P( \* l
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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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. W" s6 x0 g6 ^$ I# s' uBut 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.& s) Y6 P% M4 d! S7 }) _: f$ U
- g/ B" z7 [+ m"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.! k& O) E( W+ ^+ y& J
: _( y6 P" T+ ^, N/ x8 j" x"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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