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Gas prices are rising while crude prices are falling. What gives?
! }& M0 c3 o8 F7 c+ dPublished: Friday, January 16, 2009 | 5:11 PM ET
7 g f0 k# b- DCanadian Press NewsItem/NewsComponent/NewsLines/ByLine; T6 q& H6 a' W" B
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CALGARY - With crude oil prices falling, motorists may wonder why gasoline prices are heading in the other direction.4 k; B" P1 ?' ]' | B0 l- U
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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.0 x2 U; X5 a1 q: P! K2 C& b
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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.6 E7 d8 O* o( f- n }( i5 t; h
+ r$ ^3 J' S2 r& WBut Friday's price is still a welcome respite from the $1.40-level gas many Canadian cities faced during the summer.
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$ V! R ]% Z5 H( 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.) X% S, l4 X6 m/ N
; ?9 X W, a: l9 V+ y"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."; L' a/ Z" m5 [/ g' o9 F0 G( N/ Y
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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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1 ~. K) S5 M1 F3 {The price of crude oil, the main ingredient in gasoline, has been dropping steeply since it's peak of $147 reached in July.) B. \) F) U; l# f! B e
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The February contract for crude oil settled at US$36.51 on the New York Mercantile Exchange, down from more than US$50 a barrel a week ago.
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"Crude oil is an important input into the distillation of gasoline. But there's a lot of other factors as well," said Todd Hirsch, senior economist with ATB Financial in Calgary.
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Industry players would say they have to account for transportation, marketing and other expenses - not to mention taxes, which vary from province to province.1 Q$ N: p% T/ e+ M# e7 M
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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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& O; w: ?- k+ l* r! y% u"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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"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 $42.57 on Friday.
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6 ^& _# D7 {, E9 ^; G. i& O y"(The oil companies) might have realized that while prices were low in the last couple of weeks, they knew that there was going to be a correction," Hirsch said.+ P% d+ L' h$ N ]* [
, O- g& [, m d6 c9 Z% M0 |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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"I'm not seeing a lot of strengthening in crude oil prices over the next six months," he said.7 Q9 F: j) @( {4 j" ^: h
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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.", p4 T) W; Z3 w" Y
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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.: s# i% ~& e# X& k
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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.- R `- j6 s* h7 ?' C: Q
1 v1 }- ~' a1 N"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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