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Gas prices are rising while crude prices are falling. What gives?( p Q( i8 |& c& F: d' A2 ^
Published: Friday, January 16, 2009 | 5:11 PM ET! v5 x# J2 E# k1 a: M+ ^% Y
Canadian Press NewsItem/NewsComponent/NewsLines/ByLine
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N/ v3 s/ \( E( HCALGARY - With crude oil prices falling, motorists may wonder why gasoline prices are heading in the other direction.
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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.) D1 z' q/ g$ @( N4 H
; X+ j; t6 A/ H/ JCalgarians were paying on average 81.5 cents per litre - about a four-cent jump in just one day.
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3 a$ K2 o ^* |0 m9 R5 e7 U6 i"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 K5 h6 Q+ d/ I5 @) n) g+ uBut 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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, h) D; `6 d( R9 V4 e2 M"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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3 f: P4 |! n. T: F3 P& s5 UVancouver, which has higher gas taxes than other cities, has prices of 94.7 per litre, up from 87.5 a week ago.6 L% x1 l+ |/ P" v, ]( N
' t/ T7 _' ~. E# f5 fThe price of crude oil, the main ingredient in gasoline, has been dropping steeply since it's peak of $147 reached in July." E" m' t$ y, S
( A. q7 M) Q0 B! z0 qThe February contract for crude oil settled at US$36.51 on the New York Mercantile Exchange, down from more than US$50 a barrel a week ago.
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$ P2 L3 {: t6 z0 W7 c"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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! K$ T& T5 p- a8 [: g! \" g1 |Industry players would say they have to account for transportation, marketing and other expenses - not to mention taxes, which vary from province to province.1 R2 O- ~4 D4 b) S k1 Q
6 T a- M: p2 uBut 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.7 ~4 n4 V$ H7 N& k5 X% k1 j. k7 ~
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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 $42.57 on Friday.1 P1 d4 w4 r& E6 r3 l {
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"(The oil companies) might have realized that while prices were low in the last couple of weeks, they knew that there was going to be a correction," Hirsch said.: X+ K# y2 U' U" ?
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Hirsch expects pump prices to bounce between 60 and 90 cents per litre over the next few months, but not retesting the heights of last summer.
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"I'm not seeing a lot of strengthening in crude oil prices over the next six months," he said.1 m# ]$ B& T$ c$ e8 s# r' N
: T: R( h7 l) L8 m& y' E3 ?( k- I2 u"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.", f4 L2 j; O5 J
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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.! ^; _! K2 I5 g& y8 Y
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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.$ u' V. \* t6 D4 F- a% Q- |1 v5 D! b
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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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