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Gas prices are rising while crude prices are falling. What gives?
; M$ X' E8 R- n6 ]: c' |Published: Friday, January 16, 2009 | 5:11 PM ET0 O* y r. M' S( S7 x5 F5 i- N
Canadian Press NewsItem/NewsComponent/NewsLines/ByLine- c# o j- H8 H+ A
+ W1 }- K h8 F6 WCALGARY - With crude oil prices falling, motorists may wonder why gasoline prices are heading in the other direction./ G0 I$ r; H# w1 }
; X# Y$ q9 l: n yThe 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.2 a0 S, C9 _6 Q
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Calgarians 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.
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But Friday's price is still a welcome respite from the $1.40-level gas many Canadian cities faced during the summer.
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"I definitely changed my habits in the summer. I was going to go on two road trips, which I did not go on by virtue of the fact that the prices were so high," Lawnikanis said.
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( _9 g4 P' m) |% o8 E6 ^"Because of the fact that the prices are so reasonable, I've actually taken the liberty to drive more. I've really enjoyed doing more driving.") p6 p9 l: g4 ]
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In Toronto Friday, pump prices were 80.9 cents per litre. On Thursday they were 79.4 and a week ago they were 74.2.
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7 [9 z" |5 c1 o& B1 p9 m: OVancouver, which has higher gas taxes than other cities, has prices of 94.7 per litre, up from 87.5 a week ago.* w( i" F$ w* F4 Q$ }: I; M/ p
/ |" G! l$ m' N* p$ F+ F. {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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The February contract for crude oil settled at US$36.51 on the New York Mercantile Exchange, down from more than US$50 a barrel a week ago.
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"Crude oil is an important input into the distillation of gasoline. But there's a lot of other factors as well," said Todd Hirsch, senior economist with ATB Financial in Calgary.% G; \' F: G) q9 C
2 r7 Y7 ]$ ~7 x3 Q+ }: KIndustry 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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: \1 o! x/ s; _1 @, w" iBut those oil companies - private-sector players in a free-market system - also want to turn a profit.
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. {) o1 c5 N) g& ~* A"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.6 g6 X2 [/ \7 M9 w8 Y7 b4 M; b
: S0 P' X$ z1 |( a9 I4 `"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+ Z+ D! K- j0 P' Q% \
% J. b9 k8 x" B6 XAnother 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./ X+ Y; ^" p- `+ v
$ F" v7 z$ M% J% ^# r' l- f! G0 j: P"(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.% |9 {# k/ M0 {3 Q! b
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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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"I'm not seeing a lot of strengthening in crude oil prices over the next six months," he said.
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8 J6 f( M/ [3 E/ s4 M"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.& ^! s( X/ t" M. ]: s% O% P4 H/ ?
* w' q- C; ~7 ] t+ f5 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.
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8 `! N& k7 U# \0 } C% L3 E3 H) 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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