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Gas prices are rising while crude prices are falling. What gives?
; W9 V: k. Z# J9 M5 MPublished: Friday, January 16, 2009 | 5:11 PM ET u) `- ]! @, ^' Q+ K
Canadian Press NewsItem/NewsComponent/NewsLines/ByLine
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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.6 z! Z& C/ S3 ^" N
: B/ P# w0 w0 x( ]Calgarians were paying on average 81.5 cents per litre - about a four-cent jump in just one day.5 ~, Q! v8 ^9 J9 } I" c, F
" P: m3 ^8 |; H- M4 V3 V. b0 I"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.9 n) U9 y( K, ^
0 e, E: \- [; K! J; r# z6 \8 iBut 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."
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: X+ G n- g8 F& b2 {& }; |) HIn 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.8 P3 `) O8 E% \8 N, S
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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$50 a barrel a week ago.$ x5 q2 J( L! N3 b* x6 @4 K" _
- _- }$ H4 g# b( `9 U"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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7 ~2 w }3 v$ x1 M3 c3 S5 a% q* [Industry players would say they have to account for transportation, marketing and other expenses - not to mention taxes, which vary from province to province.- U/ }4 O- \+ c: ^2 V
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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.
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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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5 Q! k' D+ X( T% i0 ~1 fAnother 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.( G9 X' s" \: P0 l
/ V& [* S0 w( R% ZHirsch 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.1 T# a! X' M- ^) Z% _
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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."- `) o' `2 W X
0 E" L2 K: m/ O) b6 O" q/ @* dBut 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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; O2 z) W! P2 C"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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