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Gas prices are rising while crude prices are falling. What gives?. B3 Q0 N+ n0 b( _
Published: Friday, January 16, 2009 | 5:11 PM ET
# s# G7 A- B# D6 Z: b4 P, l/ }Canadian Press NewsItem/NewsComponent/NewsLines/ByLine
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$ d% j; P0 g) I" G0 ?CALGARY - With crude oil prices falling, motorists may wonder why gasoline prices are heading in the other direction. O2 X6 M! M9 f" x
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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.% F! f+ {" u+ s$ w Y
% z- L, s) e; E. Z9 U0 f/ J% GCalgarians were paying on average 81.5 cents per litre - about a four-cent jump in just one day. S5 H0 L! H" H; j
$ v. V; a4 o3 q"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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: R4 L, i% L; R# t8 e% S. S! VBut Friday's price is still a welcome respite from the $1.40-level gas many Canadian cities faced during the summer.
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1 p( l) T' G2 C0 z1 N"I definitely changed my habits in the summer. I was going to go on two road trips, which I did not go on by virtue of the fact that the prices were so high," Lawnikanis said.# o- t0 k$ p* E/ _' 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."
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+ j6 u& o7 v8 L% Y( I6 aIn Toronto Friday, pump prices were 80.9 cents per litre. On Thursday they were 79.4 and a week ago they were 74.2.7 v/ U2 P: R) s( L) S8 Z) X
' j, d; `4 O. ?0 U B7 B) nVancouver, which has higher gas taxes than other cities, has prices of 94.7 per litre, up from 87.5 a week ago.! z1 _. C# J2 y
7 Y4 r. x3 ~5 W5 k, u, s% @The price of crude oil, the main ingredient in gasoline, has been dropping steeply since it's peak of $147 reached in July.- U {* R% v( U. N9 k
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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$50 a barrel a week ago.
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"Crude oil is an important input into the distillation of gasoline. But there's a lot of other factors as well," said Todd Hirsch, senior economist with ATB Financial in Calgary.. m( `, J9 N* t( y2 e
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Industry players would say they have to account for transportation, marketing and other expenses - not to mention taxes, which vary from province to province.' P* Q! [/ s, v; i& N* R$ E) b- L
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But those oil companies - private-sector players in a free-market system - also want to turn a profit.
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2 Y: c( ], [2 o, U' c! `& v5 \) X"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.% n& l, Q- z3 ?. i) ~- E) u
. k$ R( O7 J: ^( h! \* R D"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 $42.57 on Friday.
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"(The oil companies) might have realized that while prices were low in the last couple of weeks, they knew that there was going to be a correction," Hirsch said.& h9 u, L1 l( N5 z( @% J+ v v
7 F$ w6 U/ g$ o, I, g& WHirsch 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.3 }% Y" j0 G/ P$ t) I
5 r! R: H/ ]3 @! b- x7 W"I'm not seeing a lot of strengthening in crude oil prices over the next six months," he said.5 |" |2 b7 Y0 E: K
! w: L# V9 `$ \; f) Q7 T. j% q3 W"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."- P/ G2 y8 q2 u5 u" ^/ J2 t% m, h
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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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/ |' }9 f8 h& Q D"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.3 Y5 ~1 h* K4 d1 `
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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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