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Gas prices are rising while crude prices are falling. What gives?
6 W5 i9 L: ?8 O2 KPublished: Friday, January 16, 2009 | 5:11 PM ET) }+ ?& d: L# X: [# D5 s) g
Canadian Press NewsItem/NewsComponent/NewsLines/ByLine
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( H8 E8 ?, h$ Y3 C! _) F Z! jCALGARY - With crude oil prices falling, motorists may wonder why gasoline prices are heading in the other direction.- \5 c" D7 G8 u' L- r
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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.8 }" v& c6 i4 F5 V' r; h, e8 \3 ~
) z3 ^' `, v- c, yCalgarians were paying on average 81.5 cents per litre - about a four-cent jump in just one day.
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+ A! F4 U% E2 W0 D0 k0 @"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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& }0 Q3 \, w- `& g9 e, iBut Friday's price is still a welcome respite from the $1.40-level gas many Canadian cities faced during the summer.& C6 F: ]% y9 G: w/ b; m
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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.
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* [- ^: X+ C0 ^/ 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.". ?2 Z: t6 D" D) ~) \* k
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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.
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4 C2 c) ^- D3 V/ }5 xVancouver, which has higher gas taxes than other cities, has prices of 94.7 per litre, up from 87.5 a week ago./ I' O* d7 q0 l% L7 O/ v
% n8 z- [' e& E) H, g2 EThe 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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6 d! E; k. Y3 u5 y2 r: }" pThe February contract for crude oil settled at US$36.51 on the New York Mercantile Exchange, down from more than US$50 a barrel a week ago.3 v. X; e# e9 u9 C
. ^6 a) A0 L& e; I"Crude oil is an important input into the distillation of gasoline. But there's a lot of other factors as well," said Todd Hirsch, senior economist with ATB Financial in Calgary.4 k0 H+ u" ^4 R
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Industry players would say they have to account for transportation, marketing and other expenses - not to mention taxes, which vary from province to province.
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But those oil companies - private-sector players in a free-market system - also want to turn a profit.( I9 \1 J( c4 F$ A1 \
6 L7 B7 z7 B- X) y"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.( `& @) T4 y" n+ L" E, B' d
7 ~0 T9 s" |& Q& e9 F2 j0 q* b8 \"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."; |7 ~# E, q3 W$ Z( x: W1 }% I1 n
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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 $42.57 on Friday.
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# ]. y# M3 V9 V) r/ d/ z"(The oil companies) might have realized that while prices were low in the last couple of weeks, they knew that there was going to be a correction," Hirsch said.3 V1 U5 C$ L8 s
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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.* F4 _( E& g* t
: a- j7 F8 }3 o8 r7 c"I'm not seeing a lot of strengthening in crude oil prices over the next six months," he said.
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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."
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8 O! V" D" Q5 TBut 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.
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8 H: H# H1 a% b+ ~0 h3 c"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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