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Gas prices are rising while crude prices are falling. What gives?; z5 |: I8 J: }$ I" Z S! r
Published: Friday, January 16, 2009 | 5:11 PM ET
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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.3 `5 Y- l( i; N! B$ C) [0 U3 F/ m) A/ c
. g% i, U( E3 ^( t, jCalgarians were paying on average 81.5 cents per litre - about a four-cent jump in just one day.
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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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) K5 `6 k% h) c7 oBut Friday's price is still a welcome respite from the $1.40-level gas many Canadian cities faced during the summer." s# h A, x* v$ q) U
. i; W, Y1 J& y Y2 _2 \"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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6 S: j9 t) t" R9 Z. \: n"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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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.% s. U ^/ j1 @; @+ U9 C) u
6 f# m6 z7 q0 m9 j$ F$ MVancouver, 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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8 p; {8 ?3 f# N$ \7 qThe price of crude oil, the main ingredient in gasoline, has been dropping steeply since it's peak of $147 reached in July.0 s x8 A( E2 O. B" I; m
8 ` w- Y8 e# s" P: R) ~The February contract for crude oil settled at US$36.51 on the New York Mercantile Exchange, down from more than US$50 a barrel a week ago.
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: j l ^* R! a2 x"Crude oil is an important input into the distillation of gasoline. But there's a lot of other factors as well," said Todd Hirsch, senior economist with ATB Financial in Calgary.
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9 k! M0 j, `" `: HIndustry players would say they have to account for transportation, marketing and other expenses - not to mention taxes, which vary from province to province.: F0 S& |8 J! c ~! V
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But those oil companies - private-sector players in a free-market system - also want to turn a profit.! p+ p, S# H" Z! _; A7 z) w& T
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"Without question those gasoline prices are going to be the highest they think they can get away with without their competitor undercutting them," said Hirsch.' P+ V5 [" f; y$ o6 ]
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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."' V3 E8 A( z$ M% {
: ]/ E# r* M% `/ f. B, ~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 $42.57 on Friday.
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"(The oil companies) might have realized that while prices were low in the last couple of weeks, they knew that there was going to be a correction," Hirsch said.
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Hirsch expects pump prices to bounce between 60 and 90 cents per litre over the next few months, but not retesting the heights of last summer.. H( _$ m7 c H7 }! d. e
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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."6 ^1 b/ p9 f4 ~ B" q5 ]
. s% Z5 u: @& E* W+ sBut 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. l, D7 l1 X% t! Y
. \( \ u( Q$ m7 J' w' B"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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