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Gas prices are rising while crude prices are falling. What gives?
+ d/ \, W# l* j" y6 `Published: Friday, January 16, 2009 | 5:11 PM ET
* S: d# z8 ^0 w: FCanadian Press NewsItem/NewsComponent/NewsLines/ByLine
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; _$ [: o. @( p8 k1 S: RCALGARY - With crude oil prices falling, motorists may wonder why gasoline prices are heading in the other direction.2 W2 L* i2 F" M& l: @1 W8 C; h
K$ ?9 Z6 f: `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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- b0 b. t$ Y) a! {" Z0 _% j% o: T. ICalgarians were paying on average 81.5 cents per litre - about a four-cent jump in just one day.; o3 E' B) U, W5 P" q
b4 `, c) ~# m) H n0 V# ^"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.4 O& K1 g _4 |$ @; a2 D
# C: E' ]8 H( Q7 ]" ?9 O! W8 u* oBut Friday's price is still a welcome respite from the $1.40-level gas many Canadian cities faced during the summer.% W+ J+ i7 R* E
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"I definitely changed my habits in the summer. I was going to go on two road trips, which I did not go on by virtue of the fact that the prices were so high," Lawnikanis said.
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0 _: C" H& n" z4 F/ ^' s# h"Because of the fact that the prices are so reasonable, I've actually taken the liberty to drive more. I've really enjoyed doing more driving."2 H7 s L) `6 t' g1 ~$ y) L
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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 74.2.7 Z( V/ s( n5 b0 a3 H( Y f$ a5 `
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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." ^7 r( u! d. R9 v6 Q
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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.
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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$50 a barrel a week ago.
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2 p( u/ x: D2 D5 c4 u"Crude oil is an important input into the distillation of gasoline. But there's a lot of other factors as well," said Todd Hirsch, senior economist with ATB Financial in Calgary./ a6 u) P. h# t5 O
1 a U, |% a" ZIndustry players would say they have to account for transportation, marketing and other expenses - not to mention taxes, which vary from province to province.
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But those oil companies - private-sector players in a free-market system - also want to turn a profit.
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"Without question those gasoline prices are going to be the highest they think they can get away with without their competitor undercutting them," said Hirsch.
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' p9 Q0 b' K9 ?! d; c"They're out to maximize their profits for their shareholders. I don't think there's anything evil going on in them trying to get the highest price. Every retailer in the country does this."# `9 e2 W" F& a/ D0 Z0 `: A
& y: O: k G- u6 J$ M1 s. QAnother explanation could be that the February contract for crude oil expires on Tuesday, and the contract for March is already significantly higher, settling at $42.57 on Friday.7 ]4 {% a$ z4 ~( n$ _- y5 k
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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.) b }! m# A, L0 |% l
; D& m5 d8 {& rHirsch 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 x9 @2 s; U6 ~$ p! @& n9 _+ O
* L6 ]% K3 X3 f m; S"I'm not seeing a lot of strengthening in crude oil prices over the next six months," he said.2 J: d: N+ g- w' v( K0 P
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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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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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"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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D0 C: T2 c8 g, p"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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