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Gas prices are rising while crude prices are falling. What gives? k: g8 M4 C8 G2 G3 D
Published: Friday, January 16, 2009 | 5:11 PM ET( A4 E; K3 @4 `& ]' W- j R$ ^
Canadian Press NewsItem/NewsComponent/NewsLines/ByLine
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% j w* t {7 o; LCALGARY - With crude oil prices falling, motorists may wonder why gasoline prices are heading in the other direction.
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' F/ j& \9 `5 zThe 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.# I1 M; o4 t" A& Q
" k6 O* I" N5 k, S2 JCalgarians were paying on average 81.5 cents per litre - about a four-cent jump in just one day.; y( m0 _7 ?$ n) Q, R
8 Q& ?: e5 W0 r S) Y% u"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 I+ G [' W- p3 m$ r/ a
6 P( J* X0 G& n N) j EBut Friday's price is still a welcome respite from the $1.40-level gas many Canadian cities faced during the summer.1 a4 Z4 N# c! @' |- }* }
& H+ a- e1 [( U" m/ w"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.3 ^- T1 X- f( @3 q( [
/ f G; _3 H( w/ @6 j) I" e' o/ C"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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5 b" u3 @+ N* 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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Vancouver, which has higher gas taxes than other cities, has prices of 94.7 per litre, up from 87.5 a week ago.5 ~- f, \5 j) @7 p9 I/ w! J
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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.% t8 W5 j4 _8 W Y; V( I
2 \1 q3 a% I! G; QThe 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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2 {8 {) e9 m( P+ A+ m9 {6 e8 r"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.3 L: i0 b% K1 K
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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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"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.8 K( k# S8 G# [! J2 s- d* T' O
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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 $42.57 on Friday.
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"(The oil companies) might have realized that while prices were low in the last couple of weeks, they knew that there was going to be a correction," Hirsch said.
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5 {$ S4 f4 l& B9 H4 a; u: U' JHirsch 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.7 q& p( t+ S' J6 f
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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.
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3 q7 v* I, P+ x+ B" E4 X/ l: |"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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9 \- B* ~0 b9 h0 H8 r"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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