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Gas prices are rising while crude prices are falling. What gives?, s0 r- t% T9 J- k5 v, l4 v
Published: Friday, January 16, 2009 | 5:11 PM ET
0 [! U' V7 g9 r+ f$ U* JCanadian Press NewsItem/NewsComponent/NewsLines/ByLine! K. X: G: s0 a( G
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CALGARY - With crude oil prices falling, motorists may wonder why gasoline prices are heading in the other direction.7 p% {* T. T3 [3 h/ W5 @% ?
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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.
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5 _8 G# L9 v' V: `# nCalgarians were paying on average 81.5 cents per litre - about a four-cent jump in just one day.% W0 K e% Z' o2 f4 x2 l. a
4 S' H6 E5 Q9 _6 j; y"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 P$ v4 o0 R( k, v; m( d
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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.9 X: J! _5 T( k& o% q8 A
$ _% R) s k4 a1 o/ Q- o( d' O. r. m"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.7 N9 T3 x' C' F& A1 P: n6 V* T
5 u% B1 H0 w Z$ q# p: y. W0 ?"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."9 ~: j6 D- h/ a9 g* G" V6 {% [
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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 Q- W8 s( t, c# G5 t/ X* D! K
' k5 Z: T; }3 U6 v2 w$ r' F6 {Vancouver, which has higher gas taxes than other cities, has prices of 94.7 per litre, up from 87.5 a week ago.6 f, r2 Y" H, f. S* }
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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$50 a barrel a week ago.( L$ e2 C' t7 ^% k
; r% g8 [5 P" U1 |+ L: T, l"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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9 D1 F) _/ R( A$ E# lIndustry players would say they have to account for transportation, marketing and other expenses - not to mention taxes, which vary from province to province.6 X) T3 ^8 I/ E v4 V% n
2 K/ W+ H* D. D/ Q* M7 CBut those oil companies - private-sector players in a free-market system - also want to turn a profit., n6 I X6 l8 @9 B
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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.
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! B- {* u& P, y$ e' X ["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 $42.57 on Friday.& g0 a0 \ |3 s
# @* n7 B$ A7 o, K$ |"(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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# G* H$ b# @! k; z" b0 eHirsch 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.8 \/ Y' o# V: V0 Y( ~
' Y( y& V0 E4 i. F) c"I'm not seeing a lot of strengthening in crude oil prices over the next six months," he said.' c0 r; L+ H5 x4 L4 P6 X
) y% V6 D7 E) |) O' J/ y0 s"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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3 j- |8 N: Z6 n/ e& j7 O }4 |( WBut 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.6 ^ n& [ m2 _. U( V; R% P% W
V& R. b5 M( H"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., L3 Z/ n6 n$ }" s
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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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