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Gas prices are rising while crude prices are falling. What gives?
4 c' h, F% [7 S$ C+ @Published: Friday, January 16, 2009 | 5:11 PM ET# v/ R" |4 Z5 W/ q$ ~
Canadian Press NewsItem/NewsComponent/NewsLines/ByLine4 d6 C; u, ?. B
& Z3 l2 W: q$ ~ N1 pCALGARY - With crude oil prices falling, motorists may wonder why gasoline prices are heading in the other direction.0 T' {. M& X% o/ r1 r& m) Q
' v' j9 D, q! K1 p; @8 nThe 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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+ F A6 A3 I/ E. V2 i1 L a) L% p( {"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.' N% H) S. Z4 E+ K- H+ u6 @
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But Friday's price is still a welcome respite from the $1.40-level gas many Canadian cities faced during the summer.
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"I definitely changed my habits in the summer. I was going to go on two road trips, which I did not go on by virtue of the fact that the prices were so high," Lawnikanis said.
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% a/ x( _; J1 U1 m' p"Because of the fact that the prices are so reasonable, I've actually taken the liberty to drive more. I've really enjoyed doing more driving."
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/ a, t/ {% E! n0 j. k# i3 ^* PIn Toronto Friday, pump prices were 80.9 cents per litre. On Thursday they were 79.4 and a week ago they were 74.2.
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9 P4 \" V/ P; W3 Q; T2 ~Vancouver, which has higher gas taxes than other cities, has prices of 94.7 per litre, up from 87.5 a week ago.$ ?" _+ k3 P3 B5 @8 W
q% B* d5 P% ~4 a9 }. m9 m+ r- `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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. l6 b6 T7 K- \- Q2 AThe 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." x1 H8 T, O" {2 u8 a
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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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1 a1 y9 c; M- W) ~Industry players would say they have to account for transportation, marketing and other expenses - not to mention taxes, which vary from province to province.* w, u) d. Q3 F) s
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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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"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.; {! i+ r) S, n2 c3 P8 i9 P1 L
0 ^) S g, V- @ Z"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 $42.57 on Friday.
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"(The oil companies) might have realized that while prices were low in the last couple of weeks, they knew that there was going to be a correction," Hirsch said.# H f$ p; _' l2 f: ^5 H
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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.4 P r* g6 B w! f9 }5 A( [
: e2 d* r! P4 u( Y b- {/ ^"I'm not seeing a lot of strengthening in crude oil prices over the next six months," he said.
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8 A+ d7 ^2 m+ @6 w" a"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."2 ~9 m& X4 V# d8 l9 u
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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.) \) g& c B2 e! g' P
) s1 H- A6 ~1 p' _3 }1 [7 B- y$ o6 c"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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- E6 Y# V, }( X @"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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