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Gas prices are rising while crude prices are falling. What gives?
- T" C" c1 C& t+ L& O5 k6 Z$ Y& j; SPublished: Friday, January 16, 2009 | 5:11 PM ET0 }1 C/ n" |0 l+ w- I2 i8 j
Canadian Press NewsItem/NewsComponent/NewsLines/ByLine
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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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' |0 K+ B8 ^! RCalgarians were paying on average 81.5 cents per litre - about a four-cent jump in just one day. R3 E. Q( v2 T0 \
; r$ Y; J) I5 t, X) D) x6 e"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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But Friday's price is still a welcome respite from the $1.40-level gas many Canadian cities faced during the summer.. M# r0 T: Y5 i/ Q$ Y2 h, O
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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.2 N: L* j$ p5 M( f" P, N9 {5 e. b" W5 m
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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."* C7 `3 K% x5 F `7 |
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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 74.2.9 S1 Z: x) J2 O" V/ J4 J
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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./ H* ]- r. U( o% k4 C. t6 J
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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$50 a barrel a week ago.7 y5 ~% B' F/ T H$ z* K
, K8 Q1 D+ a8 e/ |+ H) E5 l6 @$ r"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.' O: t- U$ p3 A) p3 B1 W8 ^* d
% d# ~& `. i/ WIndustry 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. s q9 i" ^ \1 X' y B0 V0 I
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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./ S6 f1 |6 K- b: ^+ X, `+ f1 h; @
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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."* ]. _/ r& ~" f: |; @9 R2 S
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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 $42.57 on Friday.7 o" z+ H! l9 B. m' b
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"(The oil companies) might have realized that while prices were low in the last couple of weeks, they knew that there was going to be a correction," Hirsch said.0 C2 n8 u# H% C5 V6 t
) {0 q1 }5 r7 z% E6 MHirsch expects pump prices to bounce between 60 and 90 cents per litre over the next few months, but not retesting the heights of last summer.7 c* W. @ n* t9 W; Y
F+ L1 Y; ^; `+ r$ S& J6 s: o3 K+ f"I'm not seeing a lot of strengthening in crude oil prices over the next six months," he said.
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; @5 _" ^/ b& S$ r"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 ~4 @9 }' f0 z2 X O4 V
8 @% `1 _& }" l7 ~1 `# ^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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; W' u$ ]2 `1 y# F+ [" I8 f"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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"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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