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Gas prices are rising while crude prices are falling. What gives?
, c+ A" s- g* I, aPublished: Friday, January 16, 2009 | 5:11 PM ET
6 o9 @# I3 E% S1 @, OCanadian Press NewsItem/NewsComponent/NewsLines/ByLine
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" F& Y, q! @5 l) z0 P7 O+ oCALGARY - With crude oil prices falling, motorists may wonder why gasoline prices are heading in the other direction.
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$ k1 I8 b5 ~1 B$ a2 b tThe 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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& V& l& [, r2 ~2 b( u8 L' zCalgarians were paying on average 81.5 cents per litre - about a four-cent jump in just one day.
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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.
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/ O0 e3 @ ]& ?, Y, H, `, BBut Friday's price is still a welcome respite from the $1.40-level gas many Canadian cities faced during the summer.
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9 L/ n5 D2 t, d( x$ A, }"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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7 Q- K" V0 K6 s$ V% G9 p"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.
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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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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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: X2 k3 d2 l7 [2 ~The February contract for crude oil settled at US$36.51 on the New York Mercantile Exchange, down from more than US$50 a barrel a week ago.6 y4 A; i& _5 i' d1 S
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"Crude oil is an important input into the distillation of gasoline. But there's a lot of other factors as well," said Todd Hirsch, senior economist with ATB Financial in Calgary. `5 r i2 |4 r
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Industry players would say they have to account for transportation, marketing and other expenses - not to mention taxes, which vary from province to province.8 u; r3 {7 ^1 E4 _
7 \: e* k1 Y8 Y0 @5 J% \$ A1 MBut those oil companies - private-sector players in a free-market system - also want to turn a profit. a8 @2 R% d0 W, Q$ H+ C
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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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"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 $42.57 on Friday.
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9 V+ \; N1 c6 V"(The oil companies) might have realized that while prices were low in the last couple of weeks, they knew that there was going to be a correction," Hirsch said.1 S2 s2 X1 D) B( r2 ^
3 w2 w. d% E) y# s8 U HHirsch expects pump prices to bounce between 60 and 90 cents per litre over the next few months, but not retesting the heights of last summer.
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2 O6 p- @+ A h5 x$ A# X( h"I'm not seeing a lot of strengthening in crude oil prices over the next six months," he said.
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R$ ]9 E0 [; |: j& x- M"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.", A/ x) T( I$ r5 \. S, U- t/ h/ C
8 s' `. ^' C6 X& _; D! s6 I$ qBut 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.5 N* Y& R$ N! a* d
_. ^) q# }: E) m( s"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., Z* _" C: p4 ~% x4 k( H( v( `
: o6 u$ n( s( S) {6 N! `% \"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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