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Gas prices are rising while crude prices are falling. What gives?* V1 s9 K, q; h @5 r$ |
Published: Friday, January 16, 2009 | 5:11 PM ET
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; ?( o* n9 }: w% U# }+ D3 ICALGARY - With crude oil prices falling, motorists may wonder why gasoline prices are heading in the other direction.6 v" A% k9 z) K5 I
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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.7 E6 ^( x6 r4 E# A
0 g+ Y" v4 F* Y+ d5 ?, @2 e4 SCalgarians were paying on average 81.5 cents per litre - about a four-cent jump in just one day.3 N! t# y9 b1 L: y: ~: o# D* p1 v
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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.
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! ?" f |- A: K) eBut Friday's price is still a welcome respite from the $1.40-level gas many Canadian cities faced during the summer.& K8 U# E, \$ e, Y7 F$ P
5 p/ M8 N/ v' g1 |! X- U"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."! e, P0 m) v( U$ Q$ v
+ @1 b3 R2 D* `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.- X+ `2 J/ G, i% c4 F8 z
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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.) U u i) o4 N, [. U. R
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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$50 a barrel a week ago.
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0 L% U( ]6 D f2 K) @"Crude oil is an important input into the distillation of gasoline. But there's a lot of other factors as well," said Todd Hirsch, senior economist with ATB Financial in Calgary.
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( N6 k. u& q. U# BIndustry players would say they have to account for transportation, marketing and other expenses - not to mention taxes, which vary from province to province.6 T( \5 [" O% S. K
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But those oil companies - private-sector players in a free-market system - also want to turn a profit., V9 b; ]1 E' L$ T3 w: x4 S
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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."9 m' L) j4 w3 b- u3 a( `2 a+ h
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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 $42.57 on Friday.! ^1 j! O; U" X4 ~8 S2 \, f' S1 ^
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"(The oil companies) might have realized that while prices were low in the last couple of weeks, they knew that there was going to be a correction," Hirsch said.
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Hirsch expects pump prices to bounce between 60 and 90 cents per litre over the next few months, but not retesting the heights of last summer.
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"I'm not seeing a lot of strengthening in crude oil prices over the next six months," he said.! q Q. E3 ?: c* h- M4 m+ O2 w
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"In the next six months I would expect to see gasoline prices more or less in the range they're in now, maybe firming up a little bit towards the spring and summer driving season as demand rises."( Z: W3 C2 x- {/ x ]0 e) N$ r
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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." ^7 v4 K1 h4 {6 S3 n' Y# ]
3 f' w; ]; ~, L% L6 {. y"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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# e3 P& ?& ]1 O/ \3 ?" ?- | D"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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