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Gas prices are rising while crude prices are falling. What gives?
; p) k% ^% ~5 S- ~: x" D' LPublished: Friday, January 16, 2009 | 5:11 PM ET ^$ h6 n5 H8 h% y! P1 \4 D3 k
Canadian Press NewsItem/NewsComponent/NewsLines/ByLine6 k# s3 J6 N; {6 [# S2 w
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CALGARY - 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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1 U& G: @5 s, _Calgarians were paying on average 81.5 cents per litre - about a four-cent jump in just one day.# h* T2 U h, o$ s
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"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.- T+ J: l; d5 \) m( G
% t+ y+ w- B; ~* N' gBut Friday's price is still a welcome respite from the $1.40-level gas many Canadian cities faced during the summer.
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"I definitely changed my habits in the summer. I was going to go on two road trips, which I did not go on by virtue of the fact that the prices were so high," Lawnikanis said.
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"Because of the fact that the prices are so reasonable, I've actually taken the liberty to drive more. I've really enjoyed doing more driving."
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In Toronto Friday, pump prices were 80.9 cents per litre. On Thursday they were 79.4 and a week ago they were 74.2.' H$ J$ z6 P+ M" ]
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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.3 ?+ H# G) ?$ i- R/ F
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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$50 a barrel a week ago.4 v5 k2 I- p0 o# g& T
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"Crude oil is an important input into the distillation of gasoline. But there's a lot of other factors as well," said Todd Hirsch, senior economist with ATB Financial in Calgary.* |* F; V% Z4 i0 r5 s# m, h# f
, w! a/ t9 d/ S% F0 \/ n3 O$ gIndustry players would say they have to account for transportation, marketing and other expenses - not to mention taxes, which vary from province to province.( Q% E# |5 I/ |& F' Q! ?
- R8 @; g/ l# Y- V* G' t1 `But those oil companies - private-sector players in a free-market system - also want to turn a profit.. E, |/ b! O0 ^
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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.. u1 e: W3 P# q, M
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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."
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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 $42.57 on Friday.
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"(The oil companies) might have realized that while prices were low in the last couple of weeks, they knew that there was going to be a correction," Hirsch said.- e) x) }- D! v; i9 H
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Hirsch expects pump prices to bounce between 60 and 90 cents per litre over the next few months, but not retesting the heights of last summer.0 d+ P u* a5 r/ T' h" _/ v& z) o
# O8 p+ n# Z: u( U8 w"I'm not seeing a lot of strengthening in crude oil prices over the next six months," he said.
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"In the next six months I would expect to see gasoline prices more or less in the range they're in now, maybe firming up a little bit towards the spring and summer driving season as demand rises."6 K' n: o; s1 _$ h! T
. p3 B5 O/ _1 d% L0 UBut 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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2 |* L1 n0 t- i* \1 |"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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