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Gas prices are rising while crude prices are falling. What gives?
1 ~' T# v9 F6 q% u+ M0 R# _Published: Friday, January 16, 2009 | 5:11 PM ET+ Q/ Y' @! b( B( k- [6 h5 e% S% G/ Q7 b5 Y
Canadian Press NewsItem/NewsComponent/NewsLines/ByLine/ v8 ~* {7 c' b1 Z) w6 }8 X
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CALGARY - 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.
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Calgarians were paying on average 81.5 cents per litre - about a four-cent jump in just one day.2 H9 Z" {3 \" H# l6 G- B$ j \
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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.) o7 n/ r1 u- U; d6 D
) K7 t7 y% Q; F4 L7 P; W/ NBut Friday's price is still a welcome respite from the $1.40-level gas many Canadian cities faced during the summer.
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"I definitely changed my habits in the summer. I was going to go on two road trips, which I did not go on by virtue of the fact that the prices were so high," Lawnikanis said.! ~0 |* G7 S! l) M3 y( F" y6 X
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"Because of the fact that the prices are so reasonable, I've actually taken the liberty to drive more. I've really enjoyed doing more driving."/ A8 M$ |& w, e4 m& X; Y& C- A, L: P
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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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" `/ m, R/ P, |& A: a! FVancouver, which has higher gas taxes than other cities, has prices of 94.7 per litre, up from 87.5 a week ago.' k' g- J0 M3 E- ~' @: A
" A4 S( T8 Q% X0 ~: b: j& jThe 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$50 a barrel a week ago.
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" b, B4 s0 l) O8 k: B8 w"Crude oil is an important input into the distillation of gasoline. But there's a lot of other factors as well," said Todd Hirsch, senior economist with ATB Financial in Calgary." s- ]7 p1 ~6 r6 L$ C+ H
5 Q* ?5 [+ r b, D: E; iIndustry players would say they have to account for transportation, marketing and other expenses - not to mention taxes, which vary from province to province.7 H I; Z% I* u' y" N# @
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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.6 e9 q. k1 y2 w7 Q
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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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0 Y3 O! l2 _& S s' [! z7 C6 N. N: bAnother explanation could be that the February contract for crude oil expires on Tuesday, and the contract for March is already significantly higher, settling at $42.57 on Friday.
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"(The oil companies) might have realized that while prices were low in the last couple of weeks, they knew that there was going to be a correction," Hirsch said." a9 L7 u0 h, S5 I
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Hirsch expects pump prices to bounce between 60 and 90 cents per litre over the next few months, but not retesting the heights of last summer.
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/ i. H4 m- i: {$ ^$ y"I'm not seeing a lot of strengthening in crude oil prices over the next six months," he said./ r+ D3 l0 X# b* t- Z! F
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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."7 D% ?# C; r" J! \8 ~( e1 p& 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.
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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.
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( h" b7 g3 I: z. e) Z/ W1 ^& K) J" {"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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