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Gas prices are rising while crude prices are falling. What gives?; s& b1 u, ~3 G/ C
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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2 u- u; Y& v0 _# RThe 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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) Z, \0 j4 ~9 A! {& L' wCalgarians were paying on average 81.5 cents per litre - about a four-cent jump in just one day.4 E7 r# V/ Q8 p, s+ `, g) h, A
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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.5 {1 b( ~5 `2 h/ p- I
! O9 q3 P% @$ S' FBut Friday's price is still a welcome respite from the $1.40-level gas many Canadian cities faced during the summer.* G) ~0 t8 h% d% Q- b; s
- g3 [. _! M8 ]5 y* |"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.% T* E* x/ k2 r; Q E5 S
p Z6 J5 P3 g" E3 P9 z2 c"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.": w: M# b- D1 ], s+ I- [* ]- k
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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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# r' J* B2 U1 C3 c: H% LThe price of crude oil, the main ingredient in gasoline, has been dropping steeply since it's peak of $147 reached in July.3 U- U* m4 |' ]- J" s3 B7 [4 I& W" a3 h
( y7 {! I& J( y; o1 L) ~% _3 xThe February contract for crude oil settled at US$36.51 on the New York Mercantile Exchange, down from more than US$50 a barrel a week ago.
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"Crude oil is an important input into the distillation of gasoline. But there's a lot of other factors as well," said Todd Hirsch, senior economist with ATB Financial in Calgary.. b3 r" M4 n2 L6 O' {* W
2 E7 D8 @! K p1 RIndustry players would say they have to account for transportation, marketing and other expenses - not to mention taxes, which vary from province to province.
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But those oil companies - private-sector players in a free-market system - also want to turn a profit.
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. r, l* o( _! P" |"Without question those gasoline prices are going to be the highest they think they can get away with without their competitor undercutting them," said Hirsch.
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, f) {- t& s+ Y8 J& _"They're out to maximize their profits for their shareholders. I don't think there's anything evil going on in them trying to get the highest price. Every retailer in the country does this."- A+ z# P9 A% A7 ^
* f6 X# ~$ z4 V+ a: X+ r/ r; cAnother explanation could be that the February contract for crude oil expires on Tuesday, and the contract for March is already significantly higher, settling at $42.57 on Friday.3 @( p( A$ S! T5 ?
3 W3 q' C1 \. S3 B"(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.' W4 w0 u$ n; [% d; K
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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.; a7 p ~9 `/ k# y& v( p
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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."
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6 K0 B4 X X' ?3 L- mBut 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.& y G" k+ k9 K6 c5 Z- I& Y- {
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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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