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Gas prices are rising while crude prices are falling. What gives?% s* u3 ^6 Y: \7 B F( {
Published: Friday, January 16, 2009 | 5:11 PM ET; O# d' n6 L, Z7 y$ b, n' d
Canadian Press NewsItem/NewsComponent/NewsLines/ByLine
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6 a4 b* ]- q( z9 Y" tCALGARY - With crude oil prices falling, motorists may wonder why gasoline prices are heading in the other direction.
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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.
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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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' z7 Y9 s2 @; cBut Friday's price is still a welcome respite from the $1.40-level gas many Canadian cities faced during the summer.
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, p2 _' p: Q' L. S0 W1 G"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.* e& X3 o; y- a6 u
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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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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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6 ~* D" x* O0 M. n. m6 B" _Vancouver, which has higher gas taxes than other cities, has prices of 94.7 per litre, up from 87.5 a week ago.9 K( x7 T* U0 V+ {3 d& _
+ o7 U: _; W# bThe price of crude oil, the main ingredient in gasoline, has been dropping steeply since it's peak of $147 reached in July.
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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.+ c h7 F2 ` L: l
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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.- t! b0 v0 ]! A" n9 x9 ^7 [# o
! Q Y& {& V, z5 Y4 G8 F8 q& N* WBut those oil companies - private-sector players in a free-market system - also want to turn a profit.3 \5 A, u: y: y1 @
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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.
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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."
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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 $42.57 on Friday.9 x9 m+ |2 U+ s
" D- N* b* h; l1 U0 y( ]! K2 B M2 B"(The oil companies) might have realized that while prices were low in the last couple of weeks, they knew that there was going to be a correction," Hirsch said.+ j: S9 c; j1 `! c" A
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Hirsch expects pump prices to bounce between 60 and 90 cents per litre over the next few months, but not retesting the heights of last summer.7 [ O. v, C$ \ i( H) e) }
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"I'm not seeing a lot of strengthening in crude oil prices over the next six months," he said.# ]/ t: S( R' U' ?) U0 F1 b' [; c
+ h( R" b1 a9 B( a"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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- S. Y5 |7 ^5 p& J- J' {: tBut 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.1 k# A7 n2 r9 U" u; E' B* x$ X; K
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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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