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Gas prices are rising while crude prices are falling. What gives?
( k9 Y8 g! |( F% k+ r* d7 JPublished: Friday, January 16, 2009 | 5:11 PM ET9 N& O" u) k$ Q) H9 {) Q
Canadian Press NewsItem/NewsComponent/NewsLines/ByLine) W6 Z- v$ |5 Y' c: B
, ?& r+ v5 J4 n' O1 F5 WCALGARY - With crude oil prices falling, motorists may wonder why gasoline prices are heading in the other direction.) p# s! S# ^4 {( G
2 y: J! t, ] }7 g* ], GThe 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.$ ~) }8 Z1 e6 {5 F, b3 ^: O. g& Y
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Calgarians 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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+ A, ~ [& M* `But Friday's price is still a welcome respite from the $1.40-level gas many Canadian cities faced during the summer.2 E& A) Z- `$ m6 ^: T0 N, k
% ^" n! D* x) `4 \- s"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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% {; i8 A- L' R5 G- A. Z9 x"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."3 I' ]& r4 w0 ^* G/ b4 Q
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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." i. X# A1 n n! [
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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.) {- n- u7 V' a/ V
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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.6 x( ^) s" L! h" Y) _: e
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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$50 a barrel a week ago.+ K, W( m: C5 { k7 m4 a2 x% D
6 y0 }5 ]6 L+ M1 z"Crude oil is an important input into the distillation of gasoline. But there's a lot of other factors as well," said Todd Hirsch, senior economist with ATB Financial in Calgary.* D! ?( [& ` A/ I8 r& s
: O$ ]4 L( m9 I |Industry players would say they have to account for transportation, marketing and other expenses - not to mention taxes, which vary from province to province.% k5 a5 u5 ^5 p, x% K5 Z
2 `0 k+ F9 S" p: t" qBut those oil companies - private-sector players in a free-market system - also want to turn a profit.
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2 H1 x/ h$ K: w& g8 O( _"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.' [: S; l5 a# c
; t# |- A- r' e3 ~- ]"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."6 K8 Y$ w: W {( Z7 b
1 v9 |6 D# C$ ~1 Z# B1 i; o& bAnother explanation could be that the February contract for crude oil expires on Tuesday, and the contract for March is already significantly higher, settling at $42.57 on Friday.! R/ \# Q1 I6 d+ `# ^
% [; y w9 _2 s/ F, \/ }3 K"(The oil companies) might have realized that while prices were low in the last couple of weeks, they knew that there was going to be a correction," Hirsch said.
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Hirsch expects pump prices to bounce between 60 and 90 cents per litre over the next few months, but not retesting the heights of last summer.
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"I'm not seeing a lot of strengthening in crude oil prices over the next six months," he said.
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"In the next six months I would expect to see gasoline prices more or less in the range they're in now, maybe firming up a little bit towards the spring and summer driving season as demand rises."( W( A; t1 U, s5 x0 g6 K
( E4 j) ~# b2 ^, y, r: h* `! K' nBut Gasbuddy.com co-founder Jason Toews said he sees gas prices going higher than their current levels because of a slowdown in Alberta's oilsands and expected production cuts by the Organization of Petroleum Exploring Countries.
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"With lower supplies of crude oil in the market it's going to push crude oil prices up, especially if the economy starts to recover a little bit," Toews said.( d3 t& P$ e( O9 ~) Q
+ T7 E) J+ v2 g6 O1 |) \& z! z"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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