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Gas prices are rising while crude prices are falling. What gives?9 B9 w4 z/ l, i6 `, g
Published: Friday, January 16, 2009 | 5:11 PM ET+ _5 D2 Z- [" W! X
Canadian Press NewsItem/NewsComponent/NewsLines/ByLine
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% Z4 o; l( _2 ~+ {) J! ?CALGARY - With crude oil prices falling, motorists may wonder why gasoline prices are heading in the other direction.& V m' w$ }+ O# V, e+ x0 z& G* I
8 @7 J/ r: @ N6 hThe 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.3 a/ i3 z3 b% Z
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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.7 N9 `+ I$ |& D( M
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But Friday's price is still a welcome respite from the $1.40-level gas many Canadian cities faced during the summer.! k4 l! |( y% M9 m
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"I definitely changed my habits in the summer. I was going to go on two road trips, which I did not go on by virtue of the fact that the prices were so high," Lawnikanis said.
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* f/ k4 v$ ^' u5 I+ v" ["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."% w1 F' |4 l# M% {
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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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0 |6 X% d$ Y" h, D @Vancouver, which has higher gas taxes than other cities, has prices of 94.7 per litre, up from 87.5 a week ago.2 X R! \% `7 r+ `* N/ K1 H6 B" m
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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$50 a barrel a week ago.) Y4 M8 e$ j$ W- E( F
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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.' `7 X% s- F: p) K6 q7 o
6 Q) M& e& i0 ~; g ^Industry players would say they have to account for transportation, marketing and other expenses - not to mention taxes, which vary from province to province.0 i( f& {% p% |4 x& ]% T4 a/ X
7 j9 l3 H# c! QBut those oil companies - private-sector players in a free-market system - also want to turn a profit.
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3 k9 _8 W- t( u) t# L5 x"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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2 Y: T* g( N2 @0 N5 R"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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: {) r1 y2 m+ EAnother explanation could be that the February contract for crude oil expires on Tuesday, and the contract for March is already significantly higher, settling at $42.57 on Friday.8 ~; q3 l k6 J9 |3 [
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"(The oil companies) might have realized that while prices were low in the last couple of weeks, they knew that there was going to be a correction," Hirsch said.! F$ a* T* p9 A6 M8 L
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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.4 f+ e# e" W! }7 h
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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."
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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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0 W1 U# ]# J% b. {9 c7 T1 \/ f: s"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.5 D3 Y3 {" o$ k7 _# ^
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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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