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Gas prices are rising while crude prices are falling. What gives?
+ ^( P* q$ B5 }Published: Friday, January 16, 2009 | 5:11 PM ET
; d8 w& \ p) \) m, s qCanadian Press NewsItem/NewsComponent/NewsLines/ByLine
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9 h' S* y: N& H; t/ KCALGARY - With crude oil prices falling, motorists may wonder why gasoline prices are heading in the other direction.( o3 ~0 T7 Q" F5 ~- u$ ]
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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.2 j2 z9 n9 [! o+ l! }
! m ^2 T+ B1 D6 _! d- GCalgarians were paying on average 81.5 cents per litre - about a four-cent jump in just one day.# _0 L1 p# F. Q7 U) R
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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.( ]7 t5 a9 W5 a y' L" c
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But Friday's price is still a welcome respite from the $1.40-level gas many Canadian cities faced during the summer.1 C3 Y9 e7 [. t8 w4 N' x9 m
1 @8 C' c3 w( m$ O% T7 W"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.( i* n% [0 U, I* j' R4 M3 y
/ ? e1 v1 n) \8 x {/ J"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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In Toronto Friday, pump prices were 80.9 cents per litre. On Thursday they were 79.4 and a week ago they were 74.2.7 d1 h& f* N6 w' y6 C
( N+ w6 \0 T0 G- N+ _$ C' N' f9 X# gVancouver, 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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5 D: R3 X# v9 `The price of crude oil, the main ingredient in gasoline, has been dropping steeply since it's peak of $147 reached in July.5 b* m/ v! Y p
/ h D4 I7 {7 u( v* ZThe February contract for crude oil settled at US$36.51 on the New York Mercantile Exchange, down from more than US$50 a barrel a week ago.5 }1 m6 b$ [/ E, R
5 q& P, S% B1 D& v% n: `. ~; O( X"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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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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: D/ ~' s. u1 \7 x6 Y9 p9 JBut those oil companies - private-sector players in a free-market system - also want to turn a profit.
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" H5 i: m+ ~" }+ {& e2 ]"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."
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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 $42.57 on Friday.
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"(The oil companies) might have realized that while prices were low in the last couple of weeks, they knew that there was going to be a correction," Hirsch said.
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$ N7 h! H: z9 ]" Y% `2 R" [2 CHirsch 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.
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"I'm not seeing a lot of strengthening in crude oil prices over the next six months," he said.6 H. H' i- h# b# ?- k6 y1 t( w+ O- T
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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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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." F5 A6 y" c7 x
" y7 p+ K( T# x/ b5 p"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 S! `- g! ~; Q+ {$ B/ d) c" D
4 j) j, J6 p7 m" H# F" ?: G3 Q4 A"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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