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Gas prices are rising while crude prices are falling. What gives?
* o' l2 e, y0 F/ D, z" s2 ~0 v# APublished: Friday, January 16, 2009 | 5:11 PM ET9 H# a# E) x. c
Canadian Press NewsItem/NewsComponent/NewsLines/ByLine
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CALGARY - With crude oil prices falling, motorists may wonder why gasoline prices are heading in the other direction.4 o' @1 x& t" P/ b6 L& C, U
8 z9 s- [7 S/ L6 X& x1 O0 |' bThe 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.+ n% c4 p, G% |5 k9 ]
4 C! ~2 f. r: J+ Y"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.) d0 p# b7 _! e& ?* F: D! [
' g7 n7 g% t. M7 }4 r/ X5 DBut Friday's price is still a welcome respite from the $1.40-level gas many Canadian cities faced during the summer.8 |" @$ ]& g1 b4 j
" E G; ]% ^$ z$ B! ~: s$ Q"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., R3 ~. D' ?) O( C" p# O
# \/ U. Q3 p* n3 G"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.
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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.
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3 F- e6 i# y- PThe price of crude oil, the main ingredient in gasoline, has been dropping steeply since it's peak of $147 reached in July. [2 I2 B6 [- [- u2 b, b
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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$50 a barrel a week ago.3 r/ I7 y, e0 }; S! s; D$ o; E
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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 L3 B$ q6 u8 |1 c; F" V; a
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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.0 \7 k% @: }: g. J9 v0 `
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But those oil companies - private-sector players in a free-market system - also want to turn a profit.
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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.' a. j7 E2 a. x8 ?9 u" E
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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."8 r8 @+ t' [( P9 [+ I
# m# v7 W% W! GAnother explanation could be that the February contract for crude oil expires on Tuesday, and the contract for March is already significantly higher, settling at $42.57 on Friday.
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"(The oil companies) might have realized that while prices were low in the last couple of weeks, they knew that there was going to be a correction," Hirsch said.* Y: m E5 ~' E0 A7 n8 C% M5 D& J. C- }
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Hirsch expects pump prices to bounce between 60 and 90 cents per litre over the next few months, but not retesting the heights of last summer.) I4 j. \! q6 R3 P( @, m6 ~6 w
- C1 h' H* l5 ]) ]2 |# u, W"I'm not seeing a lot of strengthening in crude oil prices over the next six months," he said.0 s+ G; @. j3 M! X$ k
3 _0 @, ]4 t0 h4 f V# G( l S# L"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."# W. A) _& c3 T+ j2 q. d
1 z3 _( d8 G% \! t/ U( I( Z8 N" BBut 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. [ D: d0 R/ T `$ t
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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.
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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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