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Gas prices are rising while crude prices are falling. What gives?
) @& o! z' D/ v( W3 m" EPublished: Friday, January 16, 2009 | 5:11 PM ET% r- N3 {5 P* z5 q! e, R* r- T
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+ `4 U$ }' O6 Q1 a9 n! _& G5 |CALGARY - With crude oil prices falling, motorists may wonder why gasoline prices are heading in the other direction.4 h9 Y9 L9 n3 R7 [6 r6 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." s, g+ H, J6 n+ y6 K; m" K/ e
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Calgarians were paying on average 81.5 cents per litre - about a four-cent jump in just one day./ [. q# b7 @/ ]; m
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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.
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2 d0 v- J8 K8 \: a* g/ qBut Friday's price is still a welcome respite from the $1.40-level gas many Canadian cities faced during the summer.' T* l, \0 q8 u% u
e" z- I% a" t. K1 d+ ~0 N"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."
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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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3 x. i# ~) H4 n1 ?* JVancouver, which has higher gas taxes than other cities, has prices of 94.7 per litre, up from 87.5 a week ago.9 A3 U* W' p5 {
w& H- u& j# J) Y, X0 MThe price of crude oil, the main ingredient in gasoline, has been dropping steeply since it's peak of $147 reached in July.
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% p) Y$ P3 m: M3 ]) e* E/ h, CThe February contract for crude oil settled at US$36.51 on the New York Mercantile Exchange, down from more than US$50 a barrel a week ago.
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"Crude oil is an important input into the distillation of gasoline. But there's a lot of other factors as well," said Todd Hirsch, senior economist with ATB Financial in Calgary.# v2 @8 U$ D9 E2 o
8 M$ E# p N: U: O1 Y& A7 nIndustry 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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But those oil companies - private-sector players in a free-market system - also want to turn a profit.
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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.0 R- \+ C# a$ o* @( P
% I) i5 n5 ~4 Y7 [; Z"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."# H9 Z6 d( I3 M/ n. G9 Q
E8 \, E! J0 PAnother 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.
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+ k/ w9 q u; j/ A; ZHirsch 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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3 D+ Z! y4 S# L"I'm not seeing a lot of strengthening in crude oil prices over the next six months," he said.
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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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+ i- e/ X9 {4 L4 lBut 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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/ \# m t1 K6 b& b- c2 ^4 C1 B"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.1 C- ~' l1 W- ]/ |' O& S
1 r# z- @1 J5 I, W3 w"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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