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Gas prices are rising while crude prices are falling. What gives?, L2 ]& f: ~% D& d
Published: Friday, January 16, 2009 | 5:11 PM ET o& B/ W$ ~+ p. l# S) [8 Q" w
Canadian Press NewsItem/NewsComponent/NewsLines/ByLine2 J9 o O. p1 c. J
; a* B" B. E6 L# {( uCALGARY - With crude oil prices falling, motorists may wonder why gasoline prices are heading in the other direction.9 r$ u9 x9 _8 M0 n" c
9 }" g0 f& k" k" V# A0 Y% IThe 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.1 Q- c4 b( Z/ z, ]1 l2 c2 ?, {
" ?4 d% q) o6 P' [$ o ^9 C% TCalgarians were paying on average 81.5 cents per litre - about a four-cent jump in just one day.
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. @: M9 q1 i' E* Y7 ?6 n9 V3 c; S"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.6 f* j& ]- @4 a
/ X) J! J. J/ @# Y1 O0 j& yBut Friday's price is still a welcome respite from the $1.40-level gas many Canadian cities faced during the summer.
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"I definitely changed my habits in the summer. I was going to go on two road trips, which I did not go on by virtue of the fact that the prices were so high," Lawnikanis said.2 I- J6 }: | z$ j2 [2 O/ b
3 `1 t; m, h9 P"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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: H3 r- I8 o6 I" @, J3 M. eIn 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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$ Q3 b$ B# J9 ?, l n6 gVancouver, 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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. |+ A3 v) \& N: F0 t2 U! N+ d/ Q& _The price of crude oil, the main ingredient in gasoline, has been dropping steeply since it's peak of $147 reached in July.5 i6 g+ a* T4 F( C
' B3 I9 N: i; l, B! O3 QThe February contract for crude oil settled at US$36.51 on the New York Mercantile Exchange, down from more than US$50 a barrel a week ago.
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"Crude oil is an important input into the distillation of gasoline. But there's a lot of other factors as well," said Todd Hirsch, senior economist with ATB Financial in Calgary.
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$ _1 W: I7 N1 f; FIndustry 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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$ n! u" E5 ~. C# ~But those oil companies - private-sector players in a free-market system - also want to turn a profit.% e: ^, O- @, G: Q" {0 ^( @. m
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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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" V' J6 I) I. K1 D"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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. s3 ~3 p( o3 ^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.7 {, \9 I& w2 Y" Y& Q
, |" @' e5 V; P* q/ t9 {8 M"(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.; |. V' w; ?2 J( i2 ~% h
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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."# m4 I: c" i- n m
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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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1 a! x! f4 w# q. {% d"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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