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Gas prices are rising while crude prices are falling. What gives?
. R$ z) T' }% K, L1 z7 ^Published: Friday, January 16, 2009 | 5:11 PM ET
! M8 {. \! A1 j+ {/ b4 xCanadian Press NewsItem/NewsComponent/NewsLines/ByLine* M7 e& W# ?! d
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CALGARY - With crude oil prices falling, motorists may wonder why gasoline prices are heading in the other direction., f% l' S- J4 K( S/ ]
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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.4 s1 L, H$ k* K* Y. G
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Calgarians 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./ D6 T n w( n) c
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But Friday's price is still a welcome respite from the $1.40-level gas many Canadian cities faced during the summer.( z/ {/ j) B1 ~0 K4 O" q5 N
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"I definitely changed my habits in the summer. I was going to go on two road trips, which I did not go on by virtue of the fact that the prices were so high," Lawnikanis said.0 a8 ^) Q7 ^+ L/ N1 R' i" k* H
& u5 I" G* E7 J6 i"Because of the fact that the prices are so reasonable, I've actually taken the liberty to drive more. I've really enjoyed doing more driving."
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In Toronto Friday, pump prices were 80.9 cents per litre. On Thursday they were 79.4 and a week ago they were 74.2./ {% |0 a# _( f1 @# b
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Vancouver, which has higher gas taxes than other cities, has prices of 94.7 per litre, up from 87.5 a week ago.% @. @" Z' l7 H$ W o/ A
$ Z. t z8 h! f+ I& EThe price of crude oil, the main ingredient in gasoline, has been dropping steeply since it's peak of $147 reached in July.: l. P/ o7 i1 `0 b* c
0 F' \9 |5 ^4 t6 v. C1 lThe 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.% R1 `6 O+ o! c/ ^6 B' a8 B
7 X' h5 { Y* h7 d4 g3 y2 c"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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) ^# S* ]- j' BIndustry 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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5 @) J: c n/ d9 |But those oil companies - private-sector players in a free-market system - also want to turn a profit.
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) {. j0 }3 s3 z( c5 m7 d"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.8 E+ q8 Z* v5 B5 |
1 c2 d" q; H+ f, b"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."/ B7 l+ V3 J8 D- x" s
# r+ g# t3 S, ^1 ^3 g5 l9 EAnother explanation could be that the February contract for crude oil expires on Tuesday, and the contract for March is already significantly higher, settling at $42.57 on Friday.
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"(The oil companies) might have realized that while prices were low in the last couple of weeks, they knew that there was going to be a correction," Hirsch said.
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Hirsch expects pump prices to bounce between 60 and 90 cents per litre over the next few months, but not retesting the heights of last summer.
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"I'm not seeing a lot of strengthening in crude oil prices over the next six months," he said." \& A" `$ ]% a* m0 b9 j. B( s
. M3 C, U0 H6 ~& \, t7 W* S"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."# {) O1 q3 A4 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.
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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.4 D B+ i- \2 L
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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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