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Gas prices are rising while crude prices are falling. What gives?
# D8 H' d( ~2 }! ^. J1 yPublished: Friday, January 16, 2009 | 5:11 PM ET; }/ A0 D. j2 ~. k0 d2 D: Y% M- Q
Canadian Press NewsItem/NewsComponent/NewsLines/ByLine7 c1 N1 W5 o0 t+ W8 g
, C/ N! M* S' o% r7 y w) j5 i) FCALGARY - 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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" l+ Z5 B% | R1 L3 HCalgarians were paying on average 81.5 cents per litre - about a four-cent jump in just one day.4 P6 f5 j/ {9 Z& M& u
. k7 M8 Y5 m9 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.- j, B: w1 T; P3 B
8 l+ x1 y. X2 R1 eBut Friday's price is still a welcome respite from the $1.40-level gas many Canadian cities faced during the summer.$ R/ d. q; v5 w6 B6 j1 Y* T- f4 B: O! C
0 k0 B5 z. n" F8 ?$ c% P [: q" F2 [/ P"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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"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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9 v9 P: d* y9 ?1 fIn 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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Vancouver, 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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; }: H" x; w! a1 f6 H: ^& kThe 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$50 a barrel a week ago.
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"Crude oil is an important input into the distillation of gasoline. But there's a lot of other factors as well," said Todd Hirsch, senior economist with ATB Financial in Calgary.5 f: f3 g0 G& d, k6 U( `4 y0 O8 ]
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Industry players would say they have to account for transportation, marketing and other expenses - not to mention taxes, which vary from province to province.0 }- A( r5 N- U8 W! c" P
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But those oil companies - private-sector players in a free-market system - also want to turn a profit.( L$ `, C% ?. I5 h+ ~& `1 c
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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.+ h+ E6 C& c! L9 b5 z
7 \3 J3 l" H# W1 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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& w+ T# {6 }, m9 x9 C5 ~% y0 oAnother 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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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.- m5 j) K5 G9 J
$ |2 c4 P% f( V3 V. F8 R"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."6 v. p5 K+ H/ `; x/ O( X, X
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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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! k6 R4 V" R& j2 e"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.! K1 V+ [- s- q* L
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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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