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Gas prices are rising while crude prices are falling. What gives?
* {5 f1 ?! j, Y$ x' y5 J, pPublished: Friday, January 16, 2009 | 5:11 PM ET" R! Z e6 B8 }
Canadian Press NewsItem/NewsComponent/NewsLines/ByLine4 p- z! t8 I/ w! m) E
B- `, Z# }2 c0 R p) eCALGARY - With crude oil prices falling, motorists may wonder why gasoline prices are heading in the other direction.
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' k1 u' ~# g/ [# YThe 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.# k) T6 ], ^$ q! v. z$ U7 x
' z. _- n' C. ~' z: fCalgarians were paying on average 81.5 cents per litre - about a four-cent jump in just one day.
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- [) l8 [2 r M, l6 h2 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.. t7 w) b9 q! G& X0 m9 l$ O, @
/ v7 v" i1 [* Y. f! jBut 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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"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."2 q- i: B3 x' q
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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 74.2.3 }7 j. f, a2 s9 Q# N9 T9 I: y5 \, p Z, e
# `/ a, ^, s- t. D: ]" SVancouver, which has higher gas taxes than other cities, has prices of 94.7 per litre, up from 87.5 a week ago.2 y2 P' ]9 q8 q' D; }% B; r! J
$ |6 M9 Z2 q0 `6 X" L4 Q e- OThe 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$50 a barrel a week ago.
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& M0 i! ]# p- o& w* j"Crude oil is an important input into the distillation of gasoline. But there's a lot of other factors as well," said Todd Hirsch, senior economist with ATB Financial in Calgary.
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8 o7 C7 |2 z8 m2 |" lIndustry players would say they have to account for transportation, marketing and other expenses - not to mention taxes, which vary from province to province.: L+ j2 o, o3 W; i* J9 t" }5 w
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But those oil companies - private-sector players in a free-market system - also want to turn a profit.
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9 m' `+ q' Z8 `3 q8 x"Without question those gasoline prices are going to be the highest they think they can get away with without their competitor undercutting them," said Hirsch.
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. j! P4 d; G$ l: `"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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9 g8 x1 Q& l# M: U2 V) {7 W4 EAnother 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 v' L, b8 v0 c! e' F, n+ E: a! B"(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., x9 a+ ~7 ~% {7 m5 F3 T
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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.8 L& i: r- q% ~1 z( u1 J
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"I'm not seeing a lot of strengthening in crude oil prices over the next six months," he said.% H" @5 J+ ?( R9 t9 B0 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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' o, q/ r1 g9 o% T) wBut 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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; f0 K h# \: ?8 b9 Y' N' n0 I" C"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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"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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