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Gas prices are rising while crude prices are falling. What gives?
& w; N W0 d$ y" E. U- N; `* ^Published: Friday, January 16, 2009 | 5:11 PM ET
6 _6 R S& V& J9 L, v" eCanadian Press NewsItem/NewsComponent/NewsLines/ByLine
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0 t$ M& U* Z2 B0 `; XCALGARY - 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. j/ A2 c M( z* ^0 ]9 X# V
1 s' ~. C* E; d8 kCalgarians were paying on average 81.5 cents per litre - about a four-cent jump in just one day.( p# y( p4 s5 q9 I9 `% `
" L( N; L( C# {! @& n"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.5 m# p0 W& i; f% S: Y- q6 j2 g
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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.
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: o6 S1 K/ x7 i3 b"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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8 M+ I0 O9 z; SVancouver, 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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: F: u/ l% [! ~; p' {3 c7 ^! d! ^The price of crude oil, the main ingredient in gasoline, has been dropping steeply since it's peak of $147 reached in July.
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7 Y: D$ a9 T- sThe 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.1 }2 B6 G. H" b4 s3 |1 e! w1 n+ s% h
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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.9 p& \ [3 w* W
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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.2 H' t5 D* i4 E0 S
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But those oil companies - private-sector players in a free-market system - also want to turn a profit./ J; R; u. a+ S' a
* {( a+ O" @! y4 N1 B& m( a0 D"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.2 l& Y* N9 I6 P
z6 g5 X" r2 ~+ n: {"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.") U7 e) ~' K' y
8 U3 O* z. u+ p" V( F% a; MAnother 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.* @- O3 a2 O0 V# c9 g9 }
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"(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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"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.". U/ [2 ~8 ^& ~. B
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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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, G7 l& B. c! @, @( {"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.* \4 ]9 `1 t) J. D |* s8 ~
$ h8 p; u& s' h2 y" H# l4 V"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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