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Gas prices are rising while crude prices are falling. What gives?
3 z& o1 Q& t. M% R5 PPublished: Friday, January 16, 2009 | 5:11 PM ET! N7 j, `% Q/ f! d
Canadian Press NewsItem/NewsComponent/NewsLines/ByLine; ~3 w0 G) r8 D7 F
4 e, L( j4 m; MCALGARY - With crude oil prices falling, motorists may wonder why gasoline prices are heading in the other direction.! g9 [! f6 ]+ f% _
$ d3 l. K" D- F! [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.
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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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8 \% o& o/ e+ |7 |/ \"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.8 g! ?9 n0 d* I0 f! y: O
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But Friday's price is still a welcome respite from the $1.40-level gas many Canadian cities faced during the summer.
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"I definitely changed my habits in the summer. I was going to go on two road trips, which I did not go on by virtue of the fact that the prices were so high," Lawnikanis said.
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"Because of the fact that the prices are so reasonable, I've actually taken the liberty to drive more. I've really enjoyed doing more driving."6 m& `& f! d B3 G5 i" @2 K
1 o: ?0 Q1 N4 P, U2 X$ O3 PIn Toronto Friday, pump prices were 80.9 cents per litre. On Thursday they were 79.4 and a week ago they were 74.2.7 ~" W- ?' W! J
' |% H# M( t) g. XVancouver, which has higher gas taxes than other cities, has prices of 94.7 per litre, up from 87.5 a week ago.+ `' G5 d1 b$ o3 t# r+ K
v1 n/ ~1 A5 ~ u9 \The price of crude oil, the main ingredient in gasoline, has been dropping steeply since it's peak of $147 reached in July.
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' ^: r8 c( J& y$ p5 F0 kThe February contract for crude oil settled at US$36.51 on the New York Mercantile Exchange, down from more than US$50 a barrel a week ago.
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$ L- y' z4 q& j7 l+ w6 R; T! e"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." K! A( S6 X5 u; o$ I
9 W* M& p) P0 G c ^/ A- a0 kIndustry players would say they have to account for transportation, marketing and other expenses - not to mention taxes, which vary from province to province.7 G$ g/ d, ^1 G! r7 ^
7 ~* e# {/ z/ c2 V" V& A! FBut those oil companies - private-sector players in a free-market system - also want to turn a profit.) S5 l# B' B5 @! y, Z' ~
0 B/ w$ M0 d+ U7 E W: \"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.1 B; }( K) v! q; i9 n$ I9 T
: m, c# r2 X8 w. c+ b"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." p, |9 i; \3 S1 D
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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 $42.57 on Friday.
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"(The oil companies) might have realized that while prices were low in the last couple of weeks, they knew that there was going to be a correction," Hirsch said.. M8 ~) w/ W$ b% b
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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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- F" A% b8 e. {; y/ k3 t- v+ J"I'm not seeing a lot of strengthening in crude oil prices over the next six months," he said.' I9 y% M- z; M q8 {. i) f4 {
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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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$ n* x$ Q: N2 GBut 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.* r! z! q; }- L, m+ }6 @5 D* o2 J
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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.- {; v) u/ h* o/ W6 f1 U
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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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