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Gas prices are rising while crude prices are falling. What gives?
5 E8 `6 l6 R2 w! }9 kPublished: Friday, January 16, 2009 | 5:11 PM ET! C, t# _3 e6 M# H
Canadian Press NewsItem/NewsComponent/NewsLines/ByLine/ h3 d$ G/ ]9 M3 L
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CALGARY - With crude oil prices falling, motorists may wonder why gasoline prices are heading in the other direction.0 r# a- o& M& i8 E7 w% p
; X& L" \7 O1 U/ vThe 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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. `3 D( P: k- x+ Q1 l: r# rCalgarians were paying on average 81.5 cents per litre - about a four-cent jump in just one day.
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1 Z. }! W8 v( J( g% p( u, L. e"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.. v/ B* \. c- z* n: T5 C
$ i. v6 k9 h% y8 d# BBut Friday's price is still a welcome respite from the $1.40-level gas many Canadian cities faced during the summer.
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8 T8 j+ a1 ]( g# n"I definitely changed my habits in the summer. I was going to go on two road trips, which I did not go on by virtue of the fact that the prices were so high," Lawnikanis said.3 m/ L8 C9 J5 {. B- `# @
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"Because of the fact that the prices are so reasonable, I've actually taken the liberty to drive more. I've really enjoyed doing more driving."" {* D+ f. c$ X$ t
7 R$ r( _! Z1 S4 S# \: }: |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.' c: s2 G8 H q5 A9 ~( Z: Z& f
4 r9 o, u5 F! M0 p' e& {The price of crude oil, the main ingredient in gasoline, has been dropping steeply since it's peak of $147 reached in July.2 R5 v: L* D' D; ^
2 _6 i+ X( s( i$ f% G7 gThe February contract for crude oil settled at US$36.51 on the New York Mercantile Exchange, down from more than US$50 a barrel a week ago.
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"Crude oil is an important input into the distillation of gasoline. But there's a lot of other factors as well," said Todd Hirsch, senior economist with ATB Financial in Calgary.% D, X4 v8 R4 x4 l! j7 @$ |7 R0 r
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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.# p8 x) s. V2 t4 v* ]( b8 ]
1 r$ r v% E( f& YBut those oil companies - private-sector players in a free-market system - also want to turn a profit.
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2 a/ \, ^9 L V. b0 i"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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% |: G1 |4 _4 ^5 ?. ["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.". X1 ^. t. W* m6 Q( z
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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 $42.57 on Friday.
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3 F- E4 m( L7 `% T; Y"(The oil companies) might have realized that while prices were low in the last couple of weeks, they knew that there was going to be a correction," Hirsch said.* y* Z- l' ]0 [8 W* L/ O
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Hirsch expects pump prices to bounce between 60 and 90 cents per litre over the next few months, but not retesting the heights of last summer.# n, Z% Z8 T" Q+ o G+ Y' y
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"I'm not seeing a lot of strengthening in crude oil prices over the next six months," he said.# d1 \0 V1 l4 B7 g0 D' ]0 a
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"In the next six months I would expect to see gasoline prices more or less in the range they're in now, maybe firming up a little bit towards the spring and summer driving season as demand rises."/ e; N% s& F1 b3 j9 o) _
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But Gasbuddy.com co-founder Jason Toews said he sees gas prices going higher than their current levels because of a slowdown in Alberta's oilsands and expected production cuts by the Organization of Petroleum Exploring Countries.
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; \4 x, A T1 F! c! o& x0 H"With lower supplies of crude oil in the market it's going to push crude oil prices up, especially if the economy starts to recover a little bit," Toews said.
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! o4 f$ G4 b$ N" P+ I"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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