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Gas prices are rising while crude prices are falling. What gives?
P$ @0 q3 ?: O, w, q; p( fPublished: Friday, January 16, 2009 | 5:11 PM ET, @( Q. e8 k: } i) P2 [6 R
Canadian Press NewsItem/NewsComponent/NewsLines/ByLine; h+ S( w% N/ X. n
$ j* e! u; }2 C* h1 j. aCALGARY - With crude oil prices falling, motorists may wonder why gasoline prices are heading in the other direction.! O3 T) s8 K: ]& r! q
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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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# k% A" _4 a( ~, `) }9 iCalgarians were paying on average 81.5 cents per litre - about a four-cent jump in just one day.( w' |) Y, K3 T, y
! F1 k1 r1 a: e5 e"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 $1.40-level gas many Canadian cities faced during the summer.0 T G& S6 h u [. J) k
. _+ o) [" S! y3 U9 i"I definitely changed my habits in the summer. I was going to go on two road trips, which I did not go on by virtue of the fact that the prices were so high," Lawnikanis said.
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"Because of the fact that the prices are so reasonable, I've actually taken the liberty to drive more. I've really enjoyed doing more driving."3 q1 T W6 y! G+ k- N& u
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In Toronto Friday, pump prices were 80.9 cents per litre. On Thursday they were 79.4 and a week ago they were 74.2.
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& j1 X1 F* J7 x$ }6 Y6 ]( b; l# `Vancouver, which has higher gas taxes than other cities, has prices of 94.7 per litre, up from 87.5 a week ago.- t. _$ `2 d( e) \! Z/ Y0 O$ @
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The price of crude oil, the main ingredient in gasoline, has been dropping steeply since it's peak of $147 reached in July.
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3 o$ V& S4 `6 ]& V c7 y. kThe February contract for crude oil settled at US$36.51 on the New York Mercantile Exchange, down from more than US$50 a barrel a week ago." B" o5 i/ }- V
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"Crude oil is an important input into the distillation of gasoline. But there's a lot of other factors as well," said Todd Hirsch, senior economist with ATB Financial in Calgary.# ]: ?0 p5 i! F+ r
9 n6 k6 c2 \2 qIndustry players would say they have to account for transportation, marketing and other expenses - not to mention taxes, which vary from province to province.# J' c4 C: Y; j' _( t5 f
% [5 m2 F# a$ T6 L% }! C' nBut those oil companies - private-sector players in a free-market system - also want to turn a profit.# y: m5 P3 a5 f8 S P' n
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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.) R- [2 [- Z5 b% |1 t- B& k. F
( {' Q/ z- ]' u" g* m: V"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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* ?5 w' Z- m& 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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"(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.6 W# d* t1 G" h u2 U/ q. @; |& j
, S* T& ^' a: k! a5 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.8 O5 V; C3 g& D
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"I'm not seeing a lot of strengthening in crude oil prices over the next six months," he said.
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& N) L2 `/ N- s1 L1 T+ w* w"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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But 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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( P7 ]6 |8 {4 p! v" Z"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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