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Gas prices are rising while crude prices are falling. What gives?
4 `; H4 n o" |2 ?' ~0 `" W0 s) uPublished: Friday, January 16, 2009 | 5:11 PM ET
# l( f% o% t6 dCanadian Press NewsItem/NewsComponent/NewsLines/ByLine" Z" D; B7 O" ~* U" {2 v
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CALGARY - With crude oil prices falling, motorists may wonder why gasoline prices are heading in the other direction.) D0 X5 ]- D; m" I/ q5 g
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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.
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Calgarians were paying on average 81.5 cents per litre - about a four-cent jump in just one day.
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2 D# U. p [( i5 q4 b"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 $1.40-level gas many Canadian cities faced during the summer.1 O8 n( Q: E2 @( f
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"I definitely changed my habits in the summer. I was going to go on two road trips, which I did not go on by virtue of the fact that the prices were so high," Lawnikanis said.( l: J7 s$ T. S
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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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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.% M# @# z5 H! b. w& c/ X
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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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, Q1 S6 g2 I1 d) Z6 v6 I2 QThe price of crude oil, the main ingredient in gasoline, has been dropping steeply since it's peak of $147 reached in July.
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( S4 X# S0 T& w& T8 p4 e; Z$ K" bThe February contract for crude oil settled at US$36.51 on the New York Mercantile Exchange, down from more than US$50 a barrel a week ago.
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$ {& }! [# u5 w2 k3 w* b9 o"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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$ X, l) [. ?% l- L3 aIndustry players would say they have to account for transportation, marketing and other expenses - not to mention taxes, which vary from province to province.% ^0 x$ z( m' ~* i
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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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n) G8 f& |! Q% M* p"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.2 ~. T+ R; {3 H/ D
2 f4 W8 c) y/ E, f2 S"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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1 I0 X, P$ c' C6 @+ n9 ZAnother explanation could be that the February contract for crude oil expires on Tuesday, and the contract for March is already significantly higher, settling at $42.57 on Friday.
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; @ l s$ U) f; G8 Z# N$ B6 a"(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.; C: O' J1 P* `; R
/ a; H, ]+ ]+ b7 f( G; w0 e- H) 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.4 H" E6 ]$ ^3 J# b
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"I'm not seeing a lot of strengthening in crude oil prices over the next six months," he said.; b! |' h9 n& R; l- m
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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."
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! ~2 _( Z5 u5 @- ^& C. ZBut 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.
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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.
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* y' z8 s& D; p! k+ s5 g" d1 X"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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