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Gas prices are rising while crude prices are falling. What gives?
7 w1 B$ ?$ x5 A" cPublished: Friday, January 16, 2009 | 5:11 PM ET- A, W3 |- i! F2 d" k9 m8 ^
Canadian Press NewsItem/NewsComponent/NewsLines/ByLine+ H2 t+ W( @! w" v* [; u. S
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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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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.4 A J7 l9 t. Z' _: M
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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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But Friday's price is still a welcome respite from the $1.40-level gas many Canadian cities faced during the summer., A% n; Y; C D% c
7 D% R' n8 P9 O5 b5 c. u"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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: s! \& T* k& ?* [! E2 O) F"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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0 ]( x K: j2 A% ^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.; s" j' p+ C' n4 F, _
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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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The 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$50 a barrel a week ago.
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"Crude oil is an important input into the distillation of gasoline. But there's a lot of other factors as well," said Todd Hirsch, senior economist with ATB Financial in Calgary.0 P) C3 w& l$ M: X8 K
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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.
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" R% ?$ V! Q/ F9 cBut those oil companies - private-sector players in a free-market system - also want to turn a profit.
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! {1 |/ m( p/ J/ U: r3 L' g# 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.. J# ~/ \1 }9 y5 @
; p6 f6 {1 {. ?. W' D"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- d; |" j( R
. O" Y7 p, o `0 R6 ^9 gAnother 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.0 y4 J P6 n: E* k
$ c" p J1 j, K1 I- H( \"(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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7 B3 m1 M# a$ Y7 {, U9 eHirsch 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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/ r- y3 G) `8 a6 z"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."; O1 r. d3 ]2 ^' v4 p m
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But 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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" s+ L( f+ ?/ n"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.7 m( K; u; ^4 F/ ?
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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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