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Gas prices are rising while crude prices are falling. What gives?
- i% i& j2 M# @; N0 xPublished: Friday, January 16, 2009 | 5:11 PM ET
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& O" Y2 A- t" f/ Q2 t$ ~. P, Z/ MCALGARY - With crude oil prices falling, motorists may wonder why gasoline prices are heading in the other direction.
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3 Z" e0 e, F2 Z$ Z* s9 O* o* WThe 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.4 J, l5 t0 J' J, w9 E5 ?- G/ c
: }/ p* N( i I$ {2 S& P5 w8 yCalgarians were paying on average 81.5 cents per litre - about a four-cent jump in just one day.9 ^4 X o: N) C( i( Q. K# K
6 g0 K) E/ Z/ `/ D5 ~"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.! v/ o% E8 ~/ Q4 M9 S+ I( h$ ?, z
0 B+ w/ C5 h& Y' nBut Friday's price is still a welcome respite from the $1.40-level gas many Canadian cities faced during the summer.* D. k/ `$ I3 n! d
; Q: }" W5 E' d& d; ]- U"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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6 c) W2 g: `, ]# 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."8 _: \ C% ?+ J: P; Z/ F2 N" h
( Z8 K2 A/ i7 i" D9 {# eIn 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 E$ S- ?! q: B5 }; ^4 \Vancouver, which has higher gas taxes than other cities, has prices of 94.7 per litre, up from 87.5 a week ago.+ L1 z+ Q$ w1 l7 C6 g0 x& b
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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.5 ?2 U7 d! i2 Y! t
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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$50 a barrel a week ago.
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"Crude oil is an important input into the distillation of gasoline. But there's a lot of other factors as well," said Todd Hirsch, senior economist with ATB Financial in Calgary.
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Industry players would say they have to account for transportation, marketing and other expenses - not to mention taxes, which vary from province to province., {9 k. _, H: e, \# S+ ?
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But those oil companies - private-sector players in a free-market system - also want to turn a profit.1 e# ]; n4 @- x/ X4 ?! ?: G
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"Without question those gasoline prices are going to be the highest they think they can get away with without their competitor undercutting them," said Hirsch.
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' i& J9 P$ I# k+ _: c"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 $42.57 on Friday.
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9 J! T( B" T) e! {4 B! [4 {' `"(The oil companies) might have realized that while prices were low in the last couple of weeks, they knew that there was going to be a correction," Hirsch said.
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Hirsch expects pump prices to bounce between 60 and 90 cents per litre over the next few months, but not retesting the heights of last summer.* Z8 L$ m7 L5 F
$ H8 h% p% l3 S1 C* L5 W% U"I'm not seeing a lot of strengthening in crude oil prices over the next six months," he said.8 X9 M7 ^6 p( t) A$ N* i3 b
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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."* r& b) W* Q& s- p
# {! o4 P( I( b+ C0 ], aBut 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.6 h, Q" W& y7 B8 b& a
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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.3 d& A, i! M1 w- t! s
( P) v0 S' b3 }+ }- `; h"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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