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Gas prices are rising while crude prices are falling. What gives?% a$ v5 n' k7 f& P/ j6 x
Published: Friday, January 16, 2009 | 5:11 PM ET
; Q1 J" V3 D7 }" zCanadian Press NewsItem/NewsComponent/NewsLines/ByLine
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( N* b7 }3 v3 `/ [4 {CALGARY - With crude oil prices falling, motorists may wonder why gasoline prices are heading in the other direction.& p/ F* F: V% r" e. |, H) Q
/ L1 ^" {' D7 C/ P" v- R6 h1 I2 RThe 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.( ^. m9 P# c/ u9 i) \5 b
Z: ?8 ?# D6 X- {5 w9 g. h. W3 CCalgarians were paying on average 81.5 cents per litre - about a four-cent jump in just one day.
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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., o0 t, Z% b* Q0 @: `% z
. ~+ [+ z ^0 F9 i) |: {; gBut Friday's price is still a welcome respite from the $1.40-level gas many Canadian cities faced during the summer.$ {% y9 `0 X# k, L$ H$ v
s2 G( m* w3 y1 K" G$ q& j6 q. N/ 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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) w- n( O# K0 Z3 O' Q& y9 e: b"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."; d& @) ~) }7 ^' n6 @/ U4 \
4 d" F) V* @/ {( ~) O- f% DIn 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.4 ^$ u) t7 r8 S% Y3 Z$ c% Q7 K5 E8 u6 \
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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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The February contract for crude oil settled at US$36.51 on the New York Mercantile Exchange, down from more than US$50 a barrel a week ago.
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"Crude oil is an important input into the distillation of gasoline. But there's a lot of other factors as well," said Todd Hirsch, senior economist with ATB Financial in Calgary.7 k; E3 R9 L/ r. i3 J
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Industry players would say they have to account for transportation, marketing and other expenses - not to mention taxes, which vary from province to province.
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But those oil companies - private-sector players in a free-market system - also want to turn a profit.
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2 U% u% ]! g" |. n"Without question those gasoline prices are going to be the highest they think they can get away with without their competitor undercutting them," said Hirsch.
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2 I0 }2 B8 O1 W, C$ d1 Q"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.", ]/ Z' |2 @+ a, i0 P' W/ B$ r1 H
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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 $42.57 on Friday.. D+ Y& m7 ~* U9 k3 u2 |& H
( Q' q3 u6 j- h" o"(The oil companies) might have realized that while prices were low in the last couple of weeks, they knew that there was going to be a correction," Hirsch said.
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Hirsch expects pump prices to bounce between 60 and 90 cents per litre over the next few months, but not retesting the heights of last summer.- Q: ]. M- I A: L9 P+ l
8 K& T5 k0 `( d* K2 G6 ]/ Y"I'm not seeing a lot of strengthening in crude oil prices over the next six months," he said.$ }* F! R% M% ?8 `; q4 U& g+ F
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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."3 a4 l4 _+ K8 y5 e* v
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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.$ o2 C2 b. I* m
% X; N, k$ N- E# L a" y. o"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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- i3 {% j) G6 P"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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