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Gas prices are rising while crude prices are falling. What gives?
0 e/ n% t+ U- Y! b' TPublished: Friday, January 16, 2009 | 5:11 PM ET% x) E1 ?4 Y. P: X
Canadian Press NewsItem/NewsComponent/NewsLines/ByLine) O+ S0 }3 A# ^" Y- n
6 [, J8 W: R( M Y$ P" Y* }/ f# {# gCALGARY - With crude oil prices falling, motorists may wonder why gasoline prices are heading in the other direction.
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/ j; d6 f* K3 TThe 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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H0 l3 n; ^* L- w7 K1 VCalgarians were paying on average 81.5 cents per litre - about a four-cent jump in just one day.7 _. S, [" A4 M8 l/ K4 l' h
# ^% k" N4 Q8 R3 h"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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+ z0 G2 z( J+ D) g# NBut Friday's price is still a welcome respite from the $1.40-level gas many Canadian cities faced during the summer.& z/ y) q, m7 ]9 D& X
- @6 q' b5 j+ Z6 k' J% K"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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f% Y8 D0 r# A/ n"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."7 K4 O. i, I% X) f. h" j
3 A" p) N8 ^: v+ i" ~# G! s' j/ fIn 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.
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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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The February contract for crude oil settled at US$36.51 on the New York Mercantile Exchange, down from more than US$50 a barrel a week ago.& l3 U/ f( S8 |1 s7 b7 t# ~
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"Crude oil is an important input into the distillation of gasoline. But there's a lot of other factors as well," said Todd Hirsch, senior economist with ATB Financial in Calgary.
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Industry players would say they have to account for transportation, marketing and other expenses - not to mention taxes, which vary from province to province.$ \, B4 t, _8 t+ T
6 `* B- H ]/ N& [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.! {6 H% T* U" t. ~. S* d- {
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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."" Q- y+ B- H8 c8 F" x, f' p: `+ t8 @5 J
2 i* e0 B+ J9 S* R: MAnother 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.! h, @8 T% ^0 ]* \: f4 g
: e7 Z1 b. r8 ?2 [% g1 U) s+ i"(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.
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"I'm not seeing a lot of strengthening in crude oil prices over the next six months," he said.1 _) m6 A# a/ Q( m
, ~+ J" x4 X9 |+ w: 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."0 J) Z9 W* Q8 a
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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.' L1 j0 u/ s8 ?& o4 i2 ]* D
! U( T' }; V- ^2 M"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.5 t( h; [+ v* }# U7 j+ K
$ ] T2 @9 \. W9 F"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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