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Gas prices are rising while crude prices are falling. What gives?2 q9 S. I: Q$ T2 [6 F. I
Published: Friday, January 16, 2009 | 5:11 PM ET
5 @, i( J2 E) j! YCanadian Press NewsItem/NewsComponent/NewsLines/ByLine
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* N" @" C- B$ A5 ]) F( n/ T& \5 ICALGARY - With crude oil prices falling, motorists may wonder why gasoline prices are heading in the other direction.
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; V( j. C* _5 h5 ^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.( y* U- x9 r( [, D# D
# C( D9 u/ b+ C8 L& D"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.6 Y; M7 S# M5 h% I! P
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But Friday's price is still a welcome respite from the $1.40-level gas many Canadian cities faced during the summer.
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"I definitely changed my habits in the summer. I was going to go on two road trips, which I did not go on by virtue of the fact that the prices were so high," Lawnikanis said.
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& t( x6 d) K# \/ d"Because of the fact that the prices are so reasonable, I've actually taken the liberty to drive more. I've really enjoyed doing more driving."
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0 M- u% e+ I" C( ^: U% Z V8 V# Q3 CIn Toronto Friday, pump prices were 80.9 cents per litre. On Thursday they were 79.4 and a week ago they were 74.2.
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6 K$ }0 v" e o: @( V x5 e0 IVancouver, 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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& S( H5 u: y- t8 x) SThe 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$50 a barrel a week ago.& p/ o& {! q0 |0 U h( D
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"Crude oil is an important input into the distillation of gasoline. But there's a lot of other factors as well," said Todd Hirsch, senior economist with ATB Financial in Calgary.
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Industry players would say they have to account for transportation, marketing and other expenses - not to mention taxes, which vary from province to province.
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/ d7 h$ E4 b: V, @+ C' e' TBut those oil companies - private-sector players in a free-market system - also want to turn a profit. n: K& j2 {! l6 ~) ] y
5 p, t$ e: e' [8 t6 ]4 u"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.
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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 $42.57 on Friday.
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"(The oil companies) might have realized that while prices were low in the last couple of weeks, they knew that there was going to be a correction," Hirsch said.
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A1 P( n' S5 [. HHirsch expects pump prices to bounce between 60 and 90 cents per litre over the next few months, but not retesting the heights of last summer.# d& R/ K; f$ ]' Z$ O: b8 D( P
* o T( V, z2 r; b# K"I'm not seeing a lot of strengthening in crude oil prices over the next six months," he said.
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2 N! t: N5 }) F& j/ V"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."* S# r8 E# E% s+ R' E
, L; J/ e. }( {6 P: B4 a# P* JBut 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.9 m4 g0 r/ }0 v+ k# f
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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.! i0 l/ P7 R) h) k
! [" q: K2 C* C/ {"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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