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Gas prices are rising while crude prices are falling. What gives?
: ]8 B; l6 {) S" u3 |1 YPublished: Friday, January 16, 2009 | 5:11 PM ET7 C3 w2 C9 t1 b* t. L- t
Canadian Press NewsItem/NewsComponent/NewsLines/ByLine
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( r+ j3 E7 K# K/ l! _7 K' kCALGARY - With crude oil prices falling, motorists may wonder why gasoline prices are heading in the other direction.
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/ F+ L" o( T+ W8 U 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.
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) D0 A5 x ^1 M! y! U4 n# B5 Z"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.* E# g# m, t5 ` i u9 e
4 Y4 y, N& u/ WBut Friday's price is still a welcome respite from the $1.40-level gas many Canadian cities faced during the summer.% X/ I; r( X- x
# g# O( F) V5 _# H+ e"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 J7 p' b7 z/ T
# B1 D! P# ^1 c( V"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."6 j' Y+ {0 b0 { K
) Q& G1 @: Z- Z6 P" A# XIn Toronto Friday, pump prices were 80.9 cents per litre. On Thursday they were 79.4 and a week ago they were 74.2.6 h; c3 L5 _" M8 B* z' P
& ?0 h3 t6 `3 [( `7 {; OVancouver, 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 S" t. r0 {; J# {; SThe price of crude oil, the main ingredient in gasoline, has been dropping steeply since it's peak of $147 reached in July./ C* T* S2 Z% l1 k7 c
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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$50 a barrel a week ago.
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"Crude oil is an important input into the distillation of gasoline. But there's a lot of other factors as well," said Todd Hirsch, senior economist with ATB Financial in Calgary." Y! |$ t- D: l& I# D8 }4 j6 L$ t
* U* f- G* f/ [' YIndustry players would say they have to account for transportation, marketing and other expenses - not to mention taxes, which vary from province to province.7 k2 c, n( f9 d7 n
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But those oil companies - private-sector players in a free-market system - also want to turn a profit.! w+ P3 s! w3 B; l: \
F# A* y0 b+ ]4 ]1 }) m9 k"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.) D( j. ]! e/ N( c- Z5 c5 l2 F
& E3 f4 B+ s. q* K9 Q* Q"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.": H; k$ {# s/ U: W# a4 B
: g, |, g1 q$ ^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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4 Q# ~% D' |( _9 o8 U# g5 W"(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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0 t9 f& ~! M( L9 |"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.". D6 }' e/ o4 c
W. l' N A+ F4 n8 Z, {6 RBut 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.! }6 H- u/ p# F& V" V/ @) ]1 N
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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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