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Gas prices are rising while crude prices are falling. What gives?' |# k' u4 y% n( T" z
Published: Friday, January 16, 2009 | 5:11 PM ET/ R) U7 ^& W) `
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. C. F" V% l/ i* z5 U
* P: N& q" K# ?+ C: wThe 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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. j8 N$ p Y2 O2 d: C z" i"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." A$ P8 @( o' w0 y/ ~; U8 ?/ l
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But Friday's price is still a welcome respite from the $1.40-level gas many Canadian cities faced during the summer.6 D! x/ B* r) j5 l& z, x3 J
) S9 Z! z: N6 U; m& }"I definitely changed my habits in the summer. I was going to go on two road trips, which I did not go on by virtue of the fact that the prices were so high," Lawnikanis said.
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& @' Y' Q; K3 g, ~ U, B+ @- Z"Because of the fact that the prices are so reasonable, I've actually taken the liberty to drive more. I've really enjoyed doing more driving."' e! L) o6 K, w& V- Z1 @. Z$ Z4 V
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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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& k* r% \. e+ p& UVancouver, which has higher gas taxes than other cities, has prices of 94.7 per litre, up from 87.5 a week ago.
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) k( o* r! \. u$ u0 zThe 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.
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- N0 Y9 c4 c. P5 Q"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 @" f! H7 Q( ?! V1 ?6 }
' ~# U( w) e' j% c4 e, b; q4 MIndustry 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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; ?. s9 T) M" z* L1 p) T; DBut 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.4 E' U, e' q" k: D5 ]) ?
% e! c3 r0 q, D5 x7 W& v. a"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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+ T4 V3 X) o% @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 $42.57 on Friday.+ V- b8 K$ Y. L& j% V/ O+ d0 i
: ?& C6 ]8 \3 y7 n/ N"(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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/ o" ]! r" @7 r9 V# m7 ^5 d$ THirsch 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.- H) B" B8 @/ h! M" s, L
3 m6 a6 Q8 G! E"I'm not seeing a lot of strengthening in crude oil prices over the next six months," he said.
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5 |$ W& z4 F9 E. K& h/ X, B"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."1 c7 f' l% V( c. u# I
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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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"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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