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Gas prices are rising while crude prices are falling. What gives?
( a4 r$ \) n, y$ C( a) E; hPublished: Friday, January 16, 2009 | 5:11 PM ET3 Q( Q* n% l; h, @* _
Canadian Press NewsItem/NewsComponent/NewsLines/ByLine j9 F; Z' r6 `+ _
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CALGARY - With crude oil prices falling, motorists may wonder why gasoline prices are heading in the other direction.( e' e7 S# \' b' u
2 d7 [# ^; m$ Y" }: s' \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.9 e3 c% Q R$ F
9 Z5 {4 L2 ]6 w2 }' OCalgarians were paying on average 81.5 cents per litre - about a four-cent jump in just one day.8 [% d2 J) J/ w2 |. G( s
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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.$ N& E8 U% p, K, T0 [
6 H" J8 k* K. n' ~& O6 i" q( J( \* sBut Friday's price is still a welcome respite from the $1.40-level gas many Canadian cities faced during the summer., c. F# O9 s4 X+ }
% M5 z/ c o! F* c- N) E+ q"I definitely changed my habits in the summer. I was going to go on two road trips, which I did not go on by virtue of the fact that the prices were so high," Lawnikanis said.
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$ p2 w0 `# e. t# \3 F"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."5 Y5 p) [9 s8 P9 T# R/ G" B2 G. {2 }! ]
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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.) c k& S9 @3 R+ a
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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.7 R7 P. w( |; w5 o
# y4 F, o/ _& t/ \6 h" h) W6 {. O4 `The February contract for crude oil settled at US$36.51 on the New York Mercantile Exchange, down from more than US$50 a barrel a week ago., P: G2 Y; h" Y% F
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"Crude oil is an important input into the distillation of gasoline. But there's a lot of other factors as well," said Todd Hirsch, senior economist with ATB Financial in Calgary.
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+ J4 d6 \+ o9 S& O9 _9 p3 w( G$ sIndustry players would say they have to account for transportation, marketing and other expenses - not to mention taxes, which vary from province to province.# o! @3 q4 F& Z( r+ L- m
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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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6 K$ T* {0 }3 D) ^+ {2 H+ y"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.) m g+ f6 h9 o' z
2 C$ w1 L; q+ @* q5 v: x"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."+ j5 B( y. j* F8 T2 `
$ ^2 x( _+ ^0 e1 UAnother explanation could be that the February contract for crude oil expires on Tuesday, and the contract for March is already significantly higher, settling at $42.57 on Friday.5 _9 \3 p; C* n; M: O+ Z6 A. ~. d
4 u( o* h4 G& N4 c"(The oil companies) might have realized that while prices were low in the last couple of weeks, they knew that there was going to be a correction," Hirsch said.4 r) d5 h& E3 C/ G3 h
0 r' n* {# r4 K- @( zHirsch expects pump prices to bounce between 60 and 90 cents per litre over the next few months, but not retesting the heights of last summer.
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" K, e4 ?/ {" r7 p" E0 e2 t"I'm not seeing a lot of strengthening in crude oil prices over the next six months," he said.
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, }. M! j& i3 K5 ]" _5 C* q& ~"In the next six months I would expect to see gasoline prices more or less in the range they're in now, maybe firming up a little bit towards the spring and summer driving season as demand rises."$ I: z9 U) d i B- k3 v
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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./ @) y9 I. t+ W1 f0 ^+ y- n
, o7 Q/ }' I& w$ }+ J"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.& a4 L$ _ u) A5 P$ ?7 W( f, ]# q, V
2 S5 M) @4 f" R7 ]/ q* w5 a"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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