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Gas prices are rising while crude prices are falling. What gives?
* F- M) T" z$ r# b2 bPublished: Friday, January 16, 2009 | 5:11 PM ET
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- q" H% X2 d. y" r( rCALGARY - With crude oil prices falling, motorists may wonder why gasoline prices are heading in the other direction.: b9 O1 u$ f, H _, L' W
7 d5 @; l+ }4 `# I2 M) t; xThe 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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: [: I6 U# L$ n; v9 W7 e2 O( dCalgarians were paying on average 81.5 cents per litre - about a four-cent jump in just one day.0 O. Q' ?: {+ E S( Z' X/ }% ~5 o
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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.5 |/ O, p: u: g5 I1 J9 k
' R. g; N9 z6 u. r" i- X: iBut Friday's price is still a welcome respite from the $1.40-level gas many Canadian cities faced during the summer.. b+ F0 r8 n, i# {5 J
5 E4 S6 r% j5 {/ [/ D& o"I definitely changed my habits in the summer. I was going to go on two road trips, which I did not go on by virtue of the fact that the prices were so high," Lawnikanis said.
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"Because of the fact that the prices are so reasonable, I've actually taken the liberty to drive more. I've really enjoyed doing more driving."
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9 P% q+ l6 V$ }+ }1 ~( Z1 bIn 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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) H8 \0 K1 a3 ^+ EVancouver, 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$50 a barrel a week ago." A' z4 o I7 ?$ a. [6 I
2 t6 R2 `6 U% _- ]4 }"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.% p. ~+ J; ]9 t" j
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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.3 a9 G( y% c, Q3 K# U( _
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But those oil companies - private-sector players in a free-market system - also want to turn a profit.; c, s7 W/ g4 _) ^0 S
; p- m. p5 v1 f: E"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.7 p* t7 s5 ~6 Z* d- x; P" B/ D6 }
: c+ k; p' I8 B* g. O- P- P"(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.) Y6 F4 g p2 f4 J) q
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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.
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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."8 h; y0 K% ` @# \% h
6 S0 ^0 v8 \& u* |/ V7 u( hBut 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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/ h5 N/ s9 ^/ Q+ U"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./ o* `0 F2 t6 L# G8 t& ?+ y
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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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