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Gas prices are rising while crude prices are falling. What gives?
( M# Z) v' n- i% b! @% k2 V& z3 kPublished: Friday, January 16, 2009 | 5:11 PM ET
/ t. J, u+ B( _$ i( k! ^Canadian Press NewsItem/NewsComponent/NewsLines/ByLine
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9 f/ F* d/ h; \1 C7 R4 h. TCALGARY - With crude oil prices falling, motorists may wonder why gasoline prices are heading in the other direction.
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" A$ u4 y% Z* x7 v) _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.
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Calgarians were paying on average 81.5 cents per litre - about a four-cent jump in just one day.. I6 u' y* A9 y* _8 B
* w) w5 P7 }5 k, X8 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.# |# _* B: H8 `0 y4 {$ E& Q6 M
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But Friday's price is still a welcome respite from the $1.40-level gas many Canadian cities faced during the summer.0 y0 s# T: P1 F* A% B& K2 Y
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"I definitely changed my habits in the summer. I was going to go on two road trips, which I did not go on by virtue of the fact that the prices were so high," Lawnikanis said.
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"Because of the fact that the prices are so reasonable, I've actually taken the liberty to drive more. I've really enjoyed doing more driving."
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! m5 ~* a( r5 i& X' T' b4 P4 t* nIn Toronto Friday, pump prices were 80.9 cents per litre. On Thursday they were 79.4 and a week ago they were 74.2.
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Vancouver, which has higher gas taxes than other cities, has prices of 94.7 per litre, up from 87.5 a week ago.$ c+ P b6 r( h3 B
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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.+ W1 K( s1 R+ r" H# `7 X" B
% w# E1 L+ h' x, y* NThe February contract for crude oil settled at US$36.51 on the New York Mercantile Exchange, down from more than US$50 a barrel a week ago.- b& }% s" D% k0 R, y+ w- D
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"Crude oil is an important input into the distillation of gasoline. But there's a lot of other factors as well," said Todd Hirsch, senior economist with ATB Financial in Calgary.
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Industry players would say they have to account for transportation, marketing and other expenses - not to mention taxes, which vary from province to province.5 h0 X* _# o2 h8 O
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But those oil companies - private-sector players in a free-market system - also want to turn a profit.
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"Without question those gasoline prices are going to be the highest they think they can get away with without their competitor undercutting them," said Hirsch." m$ I7 h- f7 l) j4 L: \" D
$ i& I# R) A) I9 N* |"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."1 Z! G' |% x% a: K' Y+ K% b5 H, g
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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 $42.57 on Friday.
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8 K5 f* B3 @$ [7 S6 y9 c"(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.) ~3 O4 }! b. I2 x( x S* f, `
$ b1 E) U0 Y4 I {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.2 I% g: v2 g1 x& N, i+ C
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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."; i6 \) Y6 V1 J& `9 ]. b
8 x$ G& ~% b( @1 ?) jBut 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.% n; f# ~0 d' F; ~1 |
! x. v' L) Z( n"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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1 N9 d& \- h6 ]9 b# W"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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