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Gas prices are rising while crude prices are falling. What gives?
6 e! M' h2 D7 l, BPublished: Friday, January 16, 2009 | 5:11 PM ET
3 @) F+ @1 m3 l; W, y+ k. yCanadian Press NewsItem/NewsComponent/NewsLines/ByLine
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w; C0 y1 k, l$ |CALGARY - With crude oil prices falling, motorists may wonder why gasoline prices are heading in the other direction.
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8 F# m- G# o8 @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.: v# }. r' d n% U, o
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Calgarians were paying on average 81.5 cents per litre - about a four-cent jump in just one day.% P% j6 u- Z* I3 \
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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 $1.40-level gas many Canadian cities faced during the summer.
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"I definitely changed my habits in the summer. I was going to go on two road trips, which I did not go on by virtue of the fact that the prices were so high," Lawnikanis said.
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9 o2 Q- T* ^/ x+ ?* @3 k+ u9 p"Because of the fact that the prices are so reasonable, I've actually taken the liberty to drive more. I've really enjoyed doing more driving."
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/ a/ K+ j" J' F; J% F) XIn Toronto Friday, pump prices were 80.9 cents per litre. On Thursday they were 79.4 and a week ago they were 74.2.5 I1 t* T! v, @- z ^0 y
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Vancouver, which has higher gas taxes than other cities, has prices of 94.7 per litre, up from 87.5 a week ago.+ I( M/ ^& b6 _9 D# P
k, `5 U. T* n3 \% x/ _$ D. QThe price of crude oil, the main ingredient in gasoline, has been dropping steeply since it's peak of $147 reached in July.6 r+ P* R( _7 B8 w; h6 E% ?( |
$ l2 D2 @) p. H5 o K4 v8 x2 AThe February contract for crude oil settled at US$36.51 on the New York Mercantile Exchange, down from more than US$50 a barrel a week ago.5 o g1 w0 I: `6 y1 O4 q2 G
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"Crude oil is an important input into the distillation of gasoline. But there's a lot of other factors as well," said Todd Hirsch, senior economist with ATB Financial in Calgary.
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3 s x# F( {' B! l; bIndustry players would say they have to account for transportation, marketing and other expenses - not to mention taxes, which vary from province to province./ ^3 q. S4 F& F/ G7 A' [& s' r
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But those oil companies - private-sector players in a free-market system - also want to turn a profit., L$ t- }3 s4 \; L( N9 x5 `& r" g
E+ m8 h- W# R! o2 M$ n"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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8 i- W+ z& l0 i, m"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."* |, K$ p, A |( W9 g
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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 $42.57 on Friday.6 @+ N& B" \! X
2 P f2 @' v) d9 R% n"(The oil companies) might have realized that while prices were low in the last couple of weeks, they knew that there was going to be a correction," Hirsch said.# c' O. U2 Q# m! M
) R- q, ~, E4 R; \6 y% {Hirsch expects pump prices to bounce between 60 and 90 cents per litre over the next few months, but not retesting the heights of last summer.( {& J4 f/ q/ _: b" j+ ?* @* @
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"I'm not seeing a lot of strengthening in crude oil prices over the next six months," he said.
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( g* v* q( C0 {/ N$ M2 M, Q; |"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."' m/ G" f" U/ L
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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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( K& z6 u- p* k4 T"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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5 W: u7 p [$ s% _: E% i"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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