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Gas prices are rising while crude prices are falling. What gives?
. r, W7 J6 p2 S4 HPublished: Friday, January 16, 2009 | 5:11 PM ET5 B4 }5 G" y% a( Z- \
Canadian Press NewsItem/NewsComponent/NewsLines/ByLine
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) V6 }# f3 D/ M8 P$ _, BCALGARY - With crude oil prices falling, motorists may wonder why gasoline prices are heading in the other direction.
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- @( e* w5 ~% i5 KThe 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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) i0 @% C: y+ f/ o; }. ?( j- cCalgarians 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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But Friday's price is still a welcome respite from the $1.40-level gas many Canadian cities faced during the summer.
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"I definitely changed my habits in the summer. I was going to go on two road trips, which I did not go on by virtue of the fact that the prices were so high," Lawnikanis said.3 k- ~8 w1 ?+ I3 p5 J7 _: \6 w
7 V! R4 J' c; H$ ]$ r9 [# X"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."/ U- g0 N8 L+ m. b( s
# U6 @' [0 U5 K$ e/ i! ]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.% E$ O, x! I7 X) a- L
% K- @: F A g( T, [, fVancouver, 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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6 F8 V1 K1 i6 K7 d" |; QThe 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.- d' T# I. H7 n, a
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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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7 i; a; e" T1 E4 U# @1 jIndustry players would say they have to account for transportation, marketing and other expenses - not to mention taxes, which vary from province to province.* B4 a* t* K" s: ` `# |; Y
- F! ?* A. q }- C4 P. E! W1 L, ?But those oil companies - private-sector players in a free-market system - also want to turn a profit.
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3 p) u7 a, V! o# |1 [! s0 `% f) B"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."2 g, F- S" l9 W# O, {
! h" T- G) \8 u' u9 F* v: VAnother explanation could be that the February contract for crude oil expires on Tuesday, and the contract for March is already significantly higher, settling at $42.57 on Friday.' a1 z2 A6 V: j+ O
- p0 m3 M/ e. E" O) ?- M"(The oil companies) might have realized that while prices were low in the last couple of weeks, they knew that there was going to be a correction," Hirsch said.
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Hirsch expects pump prices to bounce between 60 and 90 cents per litre over the next few months, but not retesting the heights of last summer.* L" p' q# N7 ?# K8 ?0 G" l: x' }
' l& l; |) S- e# e+ u4 x"I'm not seeing a lot of strengthening in crude oil prices over the next six months," he said.
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"In the next six months I would expect to see gasoline prices more or less in the range they're in now, maybe firming up a little bit towards the spring and summer driving season as demand rises."
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But Gasbuddy.com co-founder Jason Toews said he sees gas prices going higher than their current levels because of a slowdown in Alberta's oilsands and expected production cuts by the Organization of Petroleum Exploring Countries.5 P7 Q C/ c! R4 }$ q
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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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2 G4 j5 F6 W# C/ T4 P5 R8 \"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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