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Gas prices are rising while crude prices are falling. What gives?% f. _& i1 U# A( E1 Y
Published: Friday, January 16, 2009 | 5:11 PM ET
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CALGARY - With crude oil prices falling, motorists may wonder why gasoline prices are heading in the other direction.' H# n" e) O- B9 f- P0 }' 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.
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7 R6 z+ h4 Z6 HCalgarians 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.8 M$ N4 ~: I* h0 A
# J5 Y! X6 l+ a- Y; `But Friday's price is still a welcome respite from the $1.40-level gas many Canadian cities faced during the summer.4 C; o# Q2 ` v
; [) M6 N: Q* ?7 k6 y" ~: u"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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8 u" [9 L' S5 n9 c/ T2 S r"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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6 g" a% u8 I% L6 GIn Toronto Friday, pump prices were 80.9 cents per litre. On Thursday they were 79.4 and a week ago they were 74.2.& b: `( I( q0 E/ i
$ p0 v$ r( O- IVancouver, which has higher gas taxes than other cities, has prices of 94.7 per litre, up from 87.5 a week ago.6 u/ I% }5 ~ T( w- L2 T% v
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The price of crude oil, the main ingredient in gasoline, has been dropping steeply since it's peak of $147 reached in July.# p! @# b; ]! s+ q
; {' Q! Z8 D) ~0 J+ @6 D$ QThe February contract for crude oil settled at US$36.51 on the New York Mercantile Exchange, down from more than US$50 a barrel a week ago.
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"Crude oil is an important input into the distillation of gasoline. But there's a lot of other factors as well," said Todd Hirsch, senior economist with ATB Financial in Calgary.3 _, a- R8 q. _
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Industry players would say they have to account for transportation, marketing and other expenses - not to mention taxes, which vary from province to province.3 m1 H7 p3 G s" ]/ }5 P$ w
( x' k# ?) H* T' `2 u5 z; pBut those oil companies - private-sector players in a free-market system - also want to turn a profit.* p8 G2 L; X. D4 o/ t# b) Q
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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.
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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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"(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.
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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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1 S% c* ~+ c, j) }# G1 D0 w6 D& j"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."9 F+ ^( S) Z0 |0 e- G0 m
" \( D7 R6 w) [$ {9 h2 v/ }# dBut 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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4 v4 s& O9 u7 E$ W2 k"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.' V; H7 e' E& b G
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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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