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Gas prices are rising while crude prices are falling. What gives?
4 B3 L- S9 u' VPublished: Friday, January 16, 2009 | 5:11 PM ET
/ c' o) ^ Y4 CCanadian Press NewsItem/NewsComponent/NewsLines/ByLine
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- I" u9 B9 I' q# h8 B' \) KCALGARY - With crude oil prices falling, motorists may wonder why gasoline prices are heading in the other direction.
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# `9 N. I+ _4 jThe 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.1 Q# Z. M2 ^! s# Y! k6 j0 _
. @+ ^: J' z/ _% i d" K0 O5 CCalgarians 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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But Friday's price is still a welcome respite from the $1.40-level gas many Canadian cities faced during the summer.& Q3 {/ x6 m3 t S6 G: T
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"I definitely changed my habits in the summer. I was going to go on two road trips, which I did not go on by virtue of the fact that the prices were so high," Lawnikanis said.9 |: o, ]; M7 B& K! x6 z
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"Because of the fact that the prices are so reasonable, I've actually taken the liberty to drive more. I've really enjoyed doing more driving."
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; a+ h- G' j/ g& K; s% EIn Toronto Friday, pump prices were 80.9 cents per litre. On Thursday they were 79.4 and a week ago they were 74.2.4 C( x" w! l+ B7 p! Z$ {& u$ @7 h
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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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The February contract for crude oil settled at US$36.51 on the New York Mercantile Exchange, down from more than US$50 a barrel a week ago.
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. ~0 G& C6 w M"Crude oil is an important input into the distillation of gasoline. But there's a lot of other factors as well," said Todd Hirsch, senior economist with ATB Financial in Calgary.
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! j q/ H; J0 ^' `5 l) B* o& ~ F- @Industry players would say they have to account for transportation, marketing and other expenses - not to mention taxes, which vary from province to province.
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But those oil companies - private-sector players in a free-market system - also want to turn a profit.
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1 X# s+ b% _' f4 [. F# i"Without question those gasoline prices are going to be the highest they think they can get away with without their competitor undercutting them," said Hirsch.
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; {$ F* c# H0 l# S6 o" W* [+ _8 a" z( e"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 M" s! d0 V- ]5 V4 ^3 M9 T
2 d8 g& X! k! M4 oAnother explanation could be that the February contract for crude oil expires on Tuesday, and the contract for March is already significantly higher, settling at $42.57 on Friday.
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"(The oil companies) might have realized that while prices were low in the last couple of weeks, they knew that there was going to be a correction," Hirsch said." g. l, Q, ^& _* C f2 Y8 V
4 J6 Q7 Z! E( n! K* M; rHirsch expects pump prices to bounce between 60 and 90 cents per litre over the next few months, but not retesting the heights of last summer.
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"I'm not seeing a lot of strengthening in crude oil prices over the next six months," he said." d( t( J8 q/ ^: P# q
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"In the next six months I would expect to see gasoline prices more or less in the range they're in now, maybe firming up a little bit towards the spring and summer driving season as demand rises."4 O+ z& I: L% @( q+ f
2 q0 D5 s6 a8 x) i$ {5 A; dBut 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.: b" V- M7 u9 ^
7 p/ F# t4 F; 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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