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Gas prices are rising while crude prices are falling. What gives?$ V% N8 N8 l) ?% i0 e6 \
Published: Friday, January 16, 2009 | 5:11 PM ET
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' O! R4 m# ]$ s a M" _CALGARY - With crude oil prices falling, motorists may wonder why gasoline prices are heading in the other direction.
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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.+ f3 E" w% w Q0 }4 d& T; g
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Calgarians were paying on average 81.5 cents per litre - about a four-cent jump in just one day.1 `, A/ ]" f' F2 J+ |8 U* L* o+ m5 M
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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.4 W( M2 j3 e5 i R5 U* \% f% t! h
1 e3 y6 F+ g& `% c1 Z5 a+ FBut Friday's price is still a welcome respite from the $1.40-level gas many Canadian cities faced during the summer." L" Q0 v2 B9 L0 p0 f) s- a! B7 j
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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.5 \) h L' r& t2 N/ |1 F& T% q* r! y
" Q2 {5 l3 e/ [" i) `. _1 r"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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* E6 z& t# p& P1 w! |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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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.+ e- m5 ~ n( @ h+ e% n c `) U- i
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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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"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." R' d, v7 _) }: Z
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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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+ ~4 j0 E! C4 P% H6 Y"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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9 A1 p2 P! x, @% d. `1 t4 x0 T' d3 |: F. vAnother explanation could be that the February contract for crude oil expires on Tuesday, and the contract for March is already significantly higher, settling at $42.57 on Friday.% o6 i3 s+ A! d; f9 y ]
' l; _6 D, p6 F& c2 ?6 r$ q"(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.3 F7 t8 u; @3 g5 f( D
7 ]0 T6 O$ o3 F6 `& _4 K% HHirsch 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.# ?5 L! e U* k1 }& L; M1 r
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"I'm not seeing a lot of strengthening in crude oil prices over the next six months," he said.
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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.7 G: g: R- z- m1 W5 ^2 J( w' ]
3 @! m F8 Z5 Q! e5 z: 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.
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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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