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Gas prices are rising while crude prices are falling. What gives?9 K2 N, D& E* Y& ^- G& L
Published: Friday, January 16, 2009 | 5:11 PM ET' A0 F3 c6 v* w6 f' k
Canadian Press NewsItem/NewsComponent/NewsLines/ByLine7 p8 i/ D5 ?8 O- t. ~
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CALGARY - With crude oil prices falling, motorists may wonder why gasoline prices are heading in the other direction./ Q0 i" O; G/ `5 [% n* l! o
0 X$ _( W" ?* y! A9 JThe 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.
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4 j: ^: J' W3 [1 \/ Y* Q `Calgarians were paying on average 81.5 cents per litre - about a four-cent jump in just one day.
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8 q! Q& c/ Q6 E: B$ r: |) M"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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k$ L8 k% \2 p/ G) u/ K% SBut Friday's price is still a welcome respite from the $1.40-level gas many Canadian cities faced during the summer.9 Y: B e; C# W% e
6 _* l( @* V! q" O! J9 `"I definitely changed my habits in the summer. I was going to go on two road trips, which I did not go on by virtue of the fact that the prices were so high," Lawnikanis said. e, [# W( _5 B
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"Because of the fact that the prices are so reasonable, I've actually taken the liberty to drive more. I've really enjoyed doing more driving.", q$ ?2 @6 M9 \/ H
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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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, C. z( q. a6 x0 r- QVancouver, 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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The price of crude oil, the main ingredient in gasoline, has been dropping steeply since it's peak of $147 reached in July.$ R f/ e7 U* X5 e
3 a+ {; F% V6 L" L0 I; |- ~The February contract for crude oil settled at US$36.51 on the New York Mercantile Exchange, down from more than US$50 a barrel a week ago.& K6 d+ N% x" l6 Q, I, o* j
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"Crude oil is an important input into the distillation of gasoline. But there's a lot of other factors as well," said Todd Hirsch, senior economist with ATB Financial in Calgary., U- D# k5 b5 I7 a+ [
+ P; s0 H( y3 ~, S& c( IIndustry players would say they have to account for transportation, marketing and other expenses - not to mention taxes, which vary from province to province.
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But those oil companies - private-sector players in a free-market system - also want to turn a profit.
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& b% |/ A+ ^+ i- i+ A' `4 [+ ^1 ?"Without question those gasoline prices are going to be the highest they think they can get away with without their competitor undercutting them," said Hirsch.6 ^/ P% i8 k9 f$ Q W
1 C8 y% L3 Z* S+ K"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 $42.57 on Friday.
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( p$ M- D) n. X* C6 k"(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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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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# @" p& ]$ q- u/ T! I) G"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."5 V# X0 P7 t! T) s5 Y8 f8 G- e9 E
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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.; `& V6 L; H+ S2 Z
% w$ B! Y# N; q% p/ U: \' |5 ~1 Y% P"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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"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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