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Gas prices are rising while crude prices are falling. What gives?
3 ]2 x0 e& b# m5 E! e/ xPublished: Friday, January 16, 2009 | 5:11 PM ET2 l6 k* H6 v' C+ Z# Y& s& e
Canadian Press NewsItem/NewsComponent/NewsLines/ByLine
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% r3 s1 @- Y7 ]2 C* _5 U# NCALGARY - With crude oil prices falling, motorists may wonder why gasoline prices are heading in the other direction.$ D1 B, i m5 }1 w) C5 O3 F& 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., S+ S& ~# |: s' H$ h9 S
3 O% o1 _- D! h& Z* [" UCalgarians were paying on average 81.5 cents per litre - about a four-cent jump in just one day.# P" X: ]: T6 D
- _; r8 M+ G0 V# [) R"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.3 ^$ t$ L* {7 s: i1 Y0 P: j1 n4 x
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But Friday's price is still a welcome respite from the $1.40-level gas many Canadian cities faced during the summer.
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3 z) L7 b8 l/ N Z; b2 {7 m"I definitely changed my habits in the summer. I was going to go on two road trips, which I did not go on by virtue of the fact that the prices were so high," Lawnikanis said.
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9 z H, O2 Q1 V' I( m+ A; _"Because of the fact that the prices are so reasonable, I've actually taken the liberty to drive more. I've really enjoyed doing more driving.", E: y, B% Q! y- C8 ^9 Y$ V( u1 }* t
5 D' }) R. p( j4 h; D* F1 RIn 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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7 X5 ^( ?1 m& D2 lVancouver, 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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/ ?. ]9 P! a: k) ?- F- t! CThe 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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/ K3 H: v! f7 E: |* x* d1 s' E" |The February contract for crude oil settled at US$36.51 on the New York Mercantile Exchange, down from more than US$50 a barrel a week ago.
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"Crude oil is an important input into the distillation of gasoline. But there's a lot of other factors as well," said Todd Hirsch, senior economist with ATB Financial in Calgary.
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" M& t' k+ E+ e+ KIndustry players would say they have to account for transportation, marketing and other expenses - not to mention taxes, which vary from province to province.
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But those oil companies - private-sector players in a free-market system - also want to turn a profit.
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1 U( d$ y* V5 B# W/ Q! O) c"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.0 B7 G- A1 c! _* T, }6 v
8 M4 k- r K l* [4 A"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."" P6 _2 ~. g& A0 C
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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 $42.57 on Friday.
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& v6 @0 R$ ^1 l# j* z6 c"(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.+ F! U& W+ `( m; w5 k- o
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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.+ L: c2 O% H7 { l/ K ]0 S% Y
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"I'm not seeing a lot of strengthening in crude oil prices over the next six months," he said." ]# u* j, @# m+ T' B5 g j) N- \- I! b: O
: R- |8 V/ ^3 ?" U2 _0 g"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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8 f; C) Q6 Y1 R/ p! ? c- Y2 mBut 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.1 W% P: t; s1 C% n. F, J
& |2 L {/ Q9 }"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.% I. z- Y/ ~- `4 `* Q
) Q' M# j3 W' F c( |* C"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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