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Gas prices are rising while crude prices are falling. What gives?
2 ~& e1 q2 O( R4 W) Y, ~Published: Friday, January 16, 2009 | 5:11 PM ET+ f. G" C4 m% ~$ Y' G8 d$ r
Canadian Press NewsItem/NewsComponent/NewsLines/ByLine
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CALGARY - With crude oil prices falling, motorists may wonder why gasoline prices are heading in the other direction.$ g u$ v9 G1 _7 ?/ j
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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." z! \& F& d3 P4 W2 @. `& P! f
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Calgarians were paying on average 81.5 cents per litre - about a four-cent jump in just one day.+ `8 A' i) p6 { c% Y( v
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"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.5 j: X' j. p3 L: ~1 g9 g$ b F
" i" {: t/ N) \, x- R+ ~8 T$ K% dBut Friday's price is still a welcome respite from the $1.40-level gas many Canadian cities faced during the summer.& E, d# E8 d6 y0 c8 ^
0 } y) d) K/ }. X"I definitely changed my habits in the summer. I was going to go on two road trips, which I did not go on by virtue of the fact that the prices were so high," Lawnikanis said." a8 O6 j" o- ]- B
/ V U; l+ A! N3 |"Because of the fact that the prices are so reasonable, I've actually taken the liberty to drive more. I've really enjoyed doing more driving."% F# V3 v% B+ W2 G% [
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In Toronto Friday, pump prices were 80.9 cents per litre. On Thursday they were 79.4 and a week ago they were 74.2.) J G$ y+ N6 r. S' b# i
$ j4 [2 G% I1 a" _Vancouver, which has higher gas taxes than other cities, has prices of 94.7 per litre, up from 87.5 a week ago.- A8 Z8 v5 y+ I3 Q3 D* P
& L- k) r3 f0 YThe price of crude oil, the main ingredient in gasoline, has been dropping steeply since it's peak of $147 reached in July.1 ~3 g% {2 I' B
$ Q) O2 r) ]6 q, {4 zThe February contract for crude oil settled at US$36.51 on the New York Mercantile Exchange, down from more than US$50 a barrel a week ago.$ j& k! s `7 k: z3 n; M: Y
& t) l4 ]5 H3 s+ Q6 z( |; H"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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2 ~$ Z. E/ j; x* P4 UIndustry players would say they have to account for transportation, marketing and other expenses - not to mention taxes, which vary from province to province.
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d0 z' I2 n9 n4 W6 PBut those oil companies - private-sector players in a free-market system - also want to turn a profit.* C& C( O( Q; V8 y
2 m/ I) Y `' z% L3 G3 B; b3 Z"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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$ X+ m* X/ f$ _: 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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7 a& \8 X0 C) l, {- Y6 a5 R" SAnother 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 Q {# o6 X1 M* }9 U"(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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( g5 A+ T; @5 y! x. iHirsch 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.# f# O1 p- g# C8 W) P
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"I'm not seeing a lot of strengthening in crude oil prices over the next six months," he said.4 Q5 T+ i* B3 k5 Z- w4 T
% w6 X2 U: @0 o"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., o9 e E6 B' s5 C/ P3 _5 E
7 Y. C/ w- o& J, o7 \, P"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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