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Gas prices are rising while crude prices are falling. What gives?
3 q9 P) F) a2 fPublished: Friday, January 16, 2009 | 5:11 PM ET
! g# s Y {% Q0 U7 I( K! sCanadian 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.3 \. Q& g; \" b
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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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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." p' |* X% c s0 E$ c
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But Friday's price is still a welcome respite from the $1.40-level gas many Canadian cities faced during the summer.
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; x$ E$ S% R. ^! s9 C"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.7 w$ [' I$ U: g+ r$ F9 F4 I" O
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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.") b" d1 Y: T2 V9 N6 d
9 K7 y! I5 z9 x) `! n1 S/ F* {! ~7 B( [& XIn 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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Vancouver, which has higher gas taxes than other cities, has prices of 94.7 per litre, up from 87.5 a week ago.% H( `4 P# M) x: p1 i+ o; W* q9 c! c
& C0 N+ V! M2 z0 XThe 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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. p% J* _" R/ a( @The February contract for crude oil settled at US$36.51 on the New York Mercantile Exchange, down from more than US$50 a barrel a week ago.4 t Q! Q) J/ f/ ~% n! V
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"Crude oil is an important input into the distillation of gasoline. But there's a lot of other factors as well," said Todd Hirsch, senior economist with ATB Financial in Calgary.9 o2 P4 m# v: P; J5 \: S
7 ^9 C5 s& G* V5 Z& D2 tIndustry players would say they have to account for transportation, marketing and other expenses - not to mention taxes, which vary from province to province.
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! o* P' f/ s. I1 sBut those oil companies - private-sector players in a free-market system - also want to turn a profit.
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9 [+ u+ W$ e0 n4 I0 f1 E; p"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.") Y; B+ E0 S) ?$ W
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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 $42.57 on Friday.
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! K$ z% t% {9 C' k9 |3 N: N, _# f6 {"(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.( G% u* J- q3 M7 O
3 q4 v& t U' c+ P2 r"I'm not seeing a lot of strengthening in crude oil prices over the next six months," he said.0 s. h& z; }! A6 w5 {* e" o
/ p3 z8 p: N! B+ b6 P- t, O# m/ W2 L"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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1 m* W2 Q1 V) R/ m8 }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.2 Z+ A) d: R, D
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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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"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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