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Gas prices are rising while crude prices are falling. What gives?
; t& F1 B* ` GPublished: Friday, January 16, 2009 | 5:11 PM ET( F" u; H8 P1 ^- `" q& O
Canadian Press NewsItem/NewsComponent/NewsLines/ByLine, [/ z( {7 M) b7 m! d( M, x+ h
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CALGARY - With crude oil prices falling, motorists may wonder why gasoline prices are heading in the other direction.7 H9 }* z* D" d6 s% L% h
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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.0 w \0 C l, Q
" x9 |: J: Q3 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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: W' e& J, X# X+ }. ~8 V# X/ n: GBut Friday's price is still a welcome respite from the $1.40-level gas many Canadian cities faced during the summer.4 s1 Q6 a( c' a7 R. ~1 ]& d$ @# o$ U
5 i6 R# m4 R" H4 y* G7 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./ X v, A; o( R0 Y' l+ t- ]: K- |
( _% ?0 v; v! [3 G- h"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.", @1 G6 g, r( ?
+ \. p `! M W/ G$ TIn 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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/ v2 |' ^ j9 U; @% ~Vancouver, which has higher gas taxes than other cities, has prices of 94.7 per litre, up from 87.5 a week ago.' H& K; Q* W" v4 f$ R- `& _8 a
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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.- z% t# V- ]+ V: j- L! k+ H2 d d% B, q
: B0 j" G% ?) x. fThe February contract for crude oil settled at US$36.51 on the New York Mercantile Exchange, down from more than US$50 a barrel a week ago.+ b, O& X/ b4 w r$ ^3 j2 [
U! H$ I/ K/ b4 W: U"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.( B) L* k( a+ A& \. c
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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.4 {% D3 a! [: u' T, F
$ ^) z/ K' V/ N( eBut those oil companies - private-sector players in a free-market system - also want to turn a profit.8 K8 q3 b( t2 S5 K2 K( N/ M
: X; I3 p' h Z"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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* o7 e8 n) c7 a+ o"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 $42.57 on Friday.
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"(The oil companies) might have realized that while prices were low in the last couple of weeks, they knew that there was going to be a correction," Hirsch said.* z3 V, p% r7 r
- p2 y' Z: h: B$ O7 l8 {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.6 m- f) l0 j8 l
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"I'm not seeing a lot of strengthening in crude oil prices over the next six months," he said.4 i8 q2 e8 t, M- M& S. J
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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."
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0 }: o% A9 p$ o3 SBut 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.. q. C8 n- ]$ j. T
5 O' ?* W. z) ~/ j$ n! d"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.( w! E, C' \% m' p# G! u. S
8 J! A% l9 H1 \"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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