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Gas prices are rising while crude prices are falling. What gives?
. o+ c! U' Y" b4 V/ F) _3 bPublished: Friday, January 16, 2009 | 5:11 PM ET/ K% u9 s! h4 p
Canadian Press NewsItem/NewsComponent/NewsLines/ByLine
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4 u5 Q5 t" { E5 XCALGARY - With crude oil prices falling, motorists may wonder why gasoline prices are heading in the other direction.
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4 l+ m1 g* ^6 {, ?1 pThe 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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Calgarians were paying on average 81.5 cents per litre - about a four-cent jump in just one day.. h, Z* I7 o5 u# ]6 q; U7 y* [
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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.7 r) r, u d8 ]) V+ |# R
8 j) p' Z% u8 Q: Q# H3 y* ?$ ^/ PBut Friday's price is still a welcome respite from the $1.40-level gas many Canadian cities faced during the summer.
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k% S+ w. B$ `: }"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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; t1 L! n+ e% |In Toronto Friday, pump prices were 80.9 cents per litre. On Thursday they were 79.4 and a week ago they were 74.2.6 u; u- T4 T5 ^& t1 M% m; a+ R
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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.8 V8 ^( k4 \, w, j; s& v
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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.) X' y6 Z9 k! L+ d" Q
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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$50 a barrel a week ago.5 B, }4 g5 e. J* h/ Y1 @$ W4 b |
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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.2 N7 W5 {$ i4 C4 F7 `
9 r- J; g. k6 M+ R) o1 E( I" xIndustry players would say they have to account for transportation, marketing and other expenses - not to mention taxes, which vary from province to province.
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But those oil companies - private-sector players in a free-market system - also want to turn a profit./ s, R. Y- W; o- I
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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.5 O0 p Q3 q( H: A+ B
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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."" G$ e$ ]! \9 f
* j* a0 \2 ~2 l5 S' |8 JAnother explanation could be that the February contract for crude oil expires on Tuesday, and the contract for March is already significantly higher, settling at $42.57 on Friday.
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"(The oil companies) might have realized that while prices were low in the last couple of weeks, they knew that there was going to be a correction," Hirsch said.' s$ r) ]3 d- F- v e( G8 T4 f. R
1 m% R5 D" T5 c2 G% J) KHirsch 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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& W4 u) b6 V+ b( T* [( \0 |"I'm not seeing a lot of strengthening in crude oil prices over the next six months," he said. N& f' w* A' K7 o3 D
. }5 X6 m w* n) K"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.", l& s: p; j \: `
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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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"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.. j- W, Y% D9 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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