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Gas prices are rising while crude prices are falling. What gives?, Q/ ? o- G$ Q/ H% f, S
Published: Friday, January 16, 2009 | 5:11 PM ET
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# e, n! U3 i, ^; L `CALGARY - With crude oil prices falling, motorists may wonder why gasoline prices are heading in the other direction. M1 @' L6 } N
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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.( q! O0 H, J; y C
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Calgarians were paying on average 81.5 cents per litre - about a four-cent jump in just one day.
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, i! ~0 c, s$ t" v1 ["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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3 ~4 W- Y+ I1 m# CBut Friday's price is still a welcome respite from the $1.40-level gas many Canadian cities faced during the summer.9 C G- ~: b1 s+ Y- b/ z( n
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"I definitely changed my habits in the summer. I was going to go on two road trips, which I did not go on by virtue of the fact that the prices were so high," Lawnikanis said.% O# i$ k4 p5 ?$ z1 N7 y( h+ \
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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."7 ?$ v0 a" _! E; p# L. r
! k& v/ }2 T) t: q. _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.
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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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5 ] G' E& A u' r( Q# p- c' _ F2 {The price of crude oil, the main ingredient in gasoline, has been dropping steeply since it's peak of $147 reached in July.. a+ t3 v3 B6 \- b
# H% a9 ]; t. l+ {- |1 G) v( KThe February contract for crude oil settled at US$36.51 on the New York Mercantile Exchange, down from more than US$50 a barrel a week ago.$ f& v u1 c5 L% s* z- C' S
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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.7 `2 [: n1 m- Y
9 Y! M2 }+ X% y( @ _Industry 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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! Z# S8 d2 |+ }0 t5 g# ^But those oil companies - private-sector players in a free-market system - also want to turn a profit.
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' j5 U4 b0 m' a. z+ J"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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"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."! \6 o N6 H2 [3 G# C/ c' Q3 V: k" l- S
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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 $42.57 on Friday.
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"(The oil companies) might have realized that while prices were low in the last couple of weeks, they knew that there was going to be a correction," Hirsch said.# S6 }. t6 ~& {! B
' a+ i# {6 R$ W/ S5 S0 XHirsch 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.5 d+ Z5 D; Q" `0 }. o- {- Y; m
9 M( K( P- q7 u8 H* }! o9 M"I'm not seeing a lot of strengthening in crude oil prices over the next six months," he said.
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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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% a7 f" @7 z4 x8 N }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.3 w! Z4 a0 H# n; t8 z! z5 b9 i
9 H. t O7 u, H- T! e7 j3 d5 U- p4 h"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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