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Gas prices are rising while crude prices are falling. What gives?5 i2 i% }( q/ K4 h/ q* b P
Published: Friday, January 16, 2009 | 5:11 PM ET/ s( T/ B( c9 Q/ Z
Canadian Press NewsItem/NewsComponent/NewsLines/ByLine, P. H" ^4 G f& s! D5 v
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CALGARY - With crude oil prices falling, motorists may wonder why gasoline prices are heading in the other direction.3 p$ w* N+ D% X; t& g9 }& Z
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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.( X( R6 Z0 ]* n& N/ y8 y; u
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Calgarians were paying on average 81.5 cents per litre - about a four-cent jump in just one day.% c0 D% T4 j8 e7 }7 i- ]
" g- {6 i/ V! C6 j2 ^" f"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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1 t z" N' B- N; T6 KBut Friday's price is still a welcome respite from the $1.40-level gas many Canadian cities faced during the summer.
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"I definitely changed my habits in the summer. I was going to go on two road trips, which I did not go on by virtue of the fact that the prices were so high," Lawnikanis said.3 D$ s1 P- Y* k; N
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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."1 _; _1 S/ a4 D5 D
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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.) [1 J8 ^6 L4 o7 @
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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.; j, X+ u: o4 P7 W! R$ x2 u
! P3 ?/ ?) }8 e7 r; hThe 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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. I9 d' @! }" p: `. b9 }7 dThe February contract for crude oil settled at US$36.51 on the New York Mercantile Exchange, down from more than US$50 a barrel a week ago.
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"Crude oil is an important input into the distillation of gasoline. But there's a lot of other factors as well," said Todd Hirsch, senior economist with ATB Financial in Calgary.1 k. w0 I: _0 i% d# x$ u8 x
& Z& [. p9 R8 u' U3 a3 zIndustry players would say they have to account for transportation, marketing and other expenses - not to mention taxes, which vary from province to province.& e7 j3 G( M! r6 r! r
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But those oil companies - private-sector players in a free-market system - also want to turn a profit.' Z/ X' J' Q) P* G7 H* m9 s
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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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( E3 T8 H. T; l0 d( P"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 $42.57 on Friday.
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; K- S# c! ^% H2 i( G2 `7 }"(The oil companies) might have realized that while prices were low in the last couple of weeks, they knew that there was going to be a correction," Hirsch said.
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Hirsch expects pump prices to bounce between 60 and 90 cents per litre over the next few months, but not retesting the heights of last summer.
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. n, G" j, C7 S! `* B ~2 ^"I'm not seeing a lot of strengthening in crude oil prices over the next six months," he said.
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# o1 U0 h9 f3 X) a# J/ F"In the next six months I would expect to see gasoline prices more or less in the range they're in now, maybe firming up a little bit towards the spring and summer driving season as demand rises."! d+ }3 h( T! G, p9 B$ Z
0 Z9 j% s# `" S! m9 @9 SBut 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.' P0 D* H# J, U2 `8 r
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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.* B" G |. E8 j; \3 Z4 }: N
3 J0 V2 J8 {; L/ ?" T. t: ~1 v S"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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