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Gas prices are rising while crude prices are falling. What gives?
; d7 b- N: K) S, O9 c) \Published: Friday, January 16, 2009 | 5:11 PM ET
[8 Q% d8 ]6 e. Y* |% |$ BCanadian Press NewsItem/NewsComponent/NewsLines/ByLine h7 g) s9 [ S! [% Y Q1 |
q/ f; q$ O- z* F; L" L- A; p8 t! e' g }CALGARY - With crude oil prices falling, motorists may wonder why gasoline prices are heading in the other direction.0 m2 h$ u8 o$ b; J
! c9 C$ Z" k v6 s7 s) f# uThe 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.! @2 V6 o) T2 m4 d
" e# J( Y+ b3 n4 `) WCalgarians were paying on average 81.5 cents per litre - about a four-cent jump in just one day.$ @; B& O5 n h6 ~3 T& l: j
5 U8 |$ T* x4 N1 F$ p$ m. }"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 $1.40-level gas many Canadian cities faced during the summer.
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"I definitely changed my habits in the summer. I was going to go on two road trips, which I did not go on by virtue of the fact that the prices were so high," Lawnikanis said.9 O& |; I* E% ]9 ~5 v0 _$ O; u
7 l$ o& Z: g; U9 Z- C"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."' U% }! L9 | T# S1 n. X
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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.( J6 U; [0 k: i& Z* S% Q* m7 u
/ X7 b a6 H, l4 T) o4 AThe February contract for crude oil settled at US$36.51 on the New York Mercantile Exchange, down from more than US$50 a barrel a week ago.6 K& Z- m% ?& {: n
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"Crude oil is an important input into the distillation of gasoline. But there's a lot of other factors as well," said Todd Hirsch, senior economist with ATB Financial in Calgary.+ r4 s/ `5 {. ]5 b8 n, E
2 [ J' M9 g9 o+ x5 F3 N @4 SIndustry players would say they have to account for transportation, marketing and other expenses - not to mention taxes, which vary from province to province.: S5 z5 m4 @, `) T, |
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But those oil companies - private-sector players in a free-market system - also want to turn a profit.
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"Without question those gasoline prices are going to be the highest they think they can get away with without their competitor undercutting them," said Hirsch.
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0 G2 R$ g7 A% `7 C, `# J2 y& @"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."1 c, ]! I5 t" R- U
# n; W! g2 o8 A+ H1 i; u5 h! dAnother explanation could be that the February contract for crude oil expires on Tuesday, and the contract for March is already significantly higher, settling at $42.57 on Friday.
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1 K" o& A# U# s/ e"(The oil companies) might have realized that while prices were low in the last couple of weeks, they knew that there was going to be a correction," Hirsch said.
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Hirsch expects pump prices to bounce between 60 and 90 cents per litre over the next few months, but not retesting the heights of last summer.8 I, K% a* m! X) B# V6 C& g( Q3 ^ c
) V5 r( B4 X& v' U"I'm not seeing a lot of strengthening in crude oil prices over the next six months," he said.
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"In the next six months I would expect to see gasoline prices more or less in the range they're in now, maybe firming up a little bit towards the spring and summer driving season as demand rises.") W# V5 D8 T$ m( T+ R: z1 H; d( {
- m3 m/ k$ w/ T6 tBut 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., [& v% d5 L& {: A: h# S1 R' E# [
& u( ?7 m$ V; c7 P0 R7 r( [0 X. Y"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.) j2 ?" v4 R9 G$ O: J. O" e% H# X
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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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