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Gas prices are rising while crude prices are falling. What gives?
$ [" E* P0 ?1 m; p9 {$ [Published: Friday, January 16, 2009 | 5:11 PM ET
) V' ~( d1 n y" K% P* ?4 C+ zCanadian Press NewsItem/NewsComponent/NewsLines/ByLine
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* d9 _$ l) r. ^8 U; f7 ^$ ^( b# `/ e7 @CALGARY - With crude oil prices falling, motorists may wonder why gasoline prices are heading in the other direction. Q4 f; g8 n/ |5 L
; Q! A: `, W3 y& QThe 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.' |! g5 J1 B8 J3 g' i
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Calgarians were paying on average 81.5 cents per litre - about a four-cent jump in just one day.' C; [0 l. y6 n& V O
. J5 v+ G, p' K: Y9 G$ s"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." V% E; J' U* L3 k
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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.* m; z& P4 v1 k7 \$ S# S
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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.7 k4 p# q# h: E. @! m2 P- T. B
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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."! o6 l# p: V( Z8 Z J, u
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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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' N& W2 @( W! ?- A6 j7 yVancouver, 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 $147 reached in July.) O) U4 d: n2 |* w. G% L
4 g+ B8 n$ H. P' V; ~4 xThe February contract for crude oil settled at US$36.51 on the New York Mercantile Exchange, down from more than US$50 a barrel a week ago.
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"Crude oil is an important input into the distillation of gasoline. But there's a lot of other factors as well," said Todd Hirsch, senior economist with ATB Financial in Calgary.
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5 e0 Y2 L7 x$ w8 }; w$ DIndustry players would say they have to account for transportation, marketing and other expenses - not to mention taxes, which vary from province to province.* ?8 h5 C" [5 d$ g! c# L% U
8 O/ d8 [; r) G; i1 o i. xBut those oil companies - private-sector players in a free-market system - also want to turn a profit.9 Q5 ]. u0 w; l& d- j% m+ g6 W% [
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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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& P2 C+ ?& X( g8 S, B# ["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."8 g3 s3 c s7 y" {, A4 E
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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 $42.57 on Friday.' s, b$ I& T6 s0 b
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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.1 e7 `9 i2 I Y5 z
" {; G9 J% j; z. O$ PHirsch 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.1 s$ r* M; c6 n2 A0 g% p
8 {" C* @" u9 K7 o c0 e u8 }"I'm not seeing a lot of strengthening in crude oil prices over the next six months," he said.6 J3 {: G: ?" b% _; Z* Z0 Z0 h
; s: B$ t# B. {& j1 s- |7 @"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."! w; d9 }, q! _7 r1 b+ }% V/ c
7 c) h+ |1 t3 \3 b' C; Q* N& 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.' Y& M- L0 u9 u& w5 m* E% V
; p( J+ U5 j6 s* N6 Z, T$ L"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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0 n9 J) s$ n" m' m- o"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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