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Gas prices are rising while crude prices are falling. What gives?
/ e o% q- g6 W: APublished: Friday, January 16, 2009 | 5:11 PM ET# b) l9 |$ q# m: U4 A
Canadian Press NewsItem/NewsComponent/NewsLines/ByLine
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' @4 e+ v. }, A% P& [. `& v; \CALGARY - With crude oil prices falling, motorists may wonder why gasoline prices are heading in the other direction.8 }" s: _1 J6 I! g4 I* G5 T
' S. M6 v5 F7 J! h$ R& {! B5 s4 wThe 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.9 C( p6 s4 o, ]/ P" C+ C
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Calgarians were paying on average 81.5 cents per litre - about a four-cent jump in just one day.3 t, g$ D3 ?7 z0 h
' y9 d8 B& _' I"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.0 p0 Z- n1 f! G& S
0 t; f: t" e/ J9 U" J# t3 S5 ~ mBut Friday's price is still a welcome respite from the $1.40-level gas many Canadian cities faced during the summer.- L, j7 F+ d7 [) R. _6 n
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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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" r( M% B4 H% I( E"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."+ U9 W, L* ^5 u2 J( K2 c" [3 G
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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.* R8 |" Y1 Q: u, E/ a
( f s. M! S: P3 iVancouver, 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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# b' w/ }4 o* E: vThe 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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) t* E* O# o9 A4 L6 `The February contract for crude oil settled at US$36.51 on the New York Mercantile Exchange, down from more than US$50 a barrel a week ago.
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' V4 \0 x" E" F/ d" W" S' i4 a"Crude oil is an important input into the distillation of gasoline. But there's a lot of other factors as well," said Todd Hirsch, senior economist with ATB Financial in Calgary.9 h8 Y& J# C& h4 Q4 A
( f M; n* U1 e I) \: [! ^Industry players would say they have to account for transportation, marketing and other expenses - not to mention taxes, which vary from province to province.& M+ N4 X" T" B
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But those oil companies - private-sector players in a free-market system - also want to turn a profit.
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$ F0 k4 E0 s! X% Z"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."" |5 z" g& i( n% d2 {
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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 $42.57 on Friday.* H7 @) U, Q0 n, c' H; \7 ~3 O$ P
9 Z8 [% T! }7 f$ d' ~* B1 M"(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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5 w; c+ ~1 f* s* w/ z7 o/ H"I'm not seeing a lot of strengthening in crude oil prices over the next six months," he said.# N7 D' F% O7 q8 V" h! M w
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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.": k$ K* f4 p: O
& c+ u! v7 W: Q" M2 WBut 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./ W5 h% Q$ X1 b. t0 l) D: ^& {7 u
9 ^6 F( g! V9 ^& c/ |) ?, E0 d"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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$ n0 J8 Y! p! e0 O/ U- s"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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