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Gas prices are rising while crude prices are falling. What gives?
2 ]7 @4 T4 B1 b' L* H- uPublished: Friday, January 16, 2009 | 5:11 PM ET9 |9 k0 {5 b3 u$ Z. O
Canadian Press NewsItem/NewsComponent/NewsLines/ByLine
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. f) `- G4 E8 J( @ p: [. q7 E6 ?CALGARY - With crude oil prices falling, motorists may wonder why gasoline prices are heading in the other direction.
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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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' D' g* A. C5 ]- Q0 KCalgarians were paying on average 81.5 cents per litre - about a four-cent jump in just one day.) B7 c1 K" r' T3 L. L7 c! L
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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.3 N8 }* Z4 B( y3 B$ ?, E; \
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But Friday's price is still a welcome respite from the $1.40-level gas many Canadian cities faced during the summer. h; M$ j) Q* j: G$ z! C* m5 l6 S
; m4 t: ]0 ]7 q! {$ a! G- \3 ["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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- J2 ^* `2 {' 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."
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, ?% ^- V* c6 k+ j' ?7 G, RIn 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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& Q. S( S1 r6 x/ C# VVancouver, 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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2 w: {$ J4 B7 ^' c& |The price of crude oil, the main ingredient in gasoline, has been dropping steeply since it's peak of $147 reached in July.5 x* k5 V1 z( O, q# X/ T9 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.6 ]+ ^3 W8 g7 D w& `& W
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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.
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. n7 C) w! L. t: f5 R+ gBut those oil companies - private-sector players in a free-market system - also want to turn a profit.( l5 q4 V! }* ^, `" V4 S
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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 $42.57 on Friday.
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! p0 G5 U) @$ h+ V5 V"(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.6 G0 ?( M; j1 [; Z) S- v7 \
% \+ u% b1 \# \( ]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.5 F: U* S+ k6 v
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"I'm not seeing a lot of strengthening in crude oil prices over the next six months," he said. i+ b$ P) U+ j2 _
6 f& Q. s# U0 w# g"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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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.9 a- x! J# Q. e x
* r; \; ^5 m4 q5 j"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.2 f: C/ x9 G7 j" H6 t% t
, s/ g5 Y- V$ F"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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