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Gas prices are rising while crude prices are falling. What gives?# y' b$ e! x: e
Published: Friday, January 16, 2009 | 5:11 PM ET
# k/ T* K" e7 S* GCanadian Press NewsItem/NewsComponent/NewsLines/ByLine
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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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/ E5 c, B& ]7 G" C% B% lThe 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.0 a8 o2 p' Y1 Q3 s, z" _
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Calgarians were paying on average 81.5 cents per litre - about a four-cent jump in just one day.
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+ q& u* ]% x/ n9 D' l4 T"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 $1.40-level gas many Canadian cities faced during the summer.
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6 C2 K4 S6 r* y"I definitely changed my habits in the summer. I was going to go on two road trips, which I did not go on by virtue of the fact that the prices were so high," Lawnikanis said.
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. A' i0 X) r5 B( m [7 m) w"Because of the fact that the prices are so reasonable, I've actually taken the liberty to drive more. I've really enjoyed doing more driving."! T& e! s; }" H
( ]$ U" \( m7 U2 ?/ ~0 OIn Toronto Friday, pump prices were 80.9 cents per litre. On Thursday they were 79.4 and a week ago they were 74.2.4 a: i) M1 k; u( }6 U
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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.2 F/ |6 p( E% j4 \
; s! [# T7 ^2 i+ q/ x% N& k- ~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.
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; X. X/ _* M" X, B) W) C* V. jIndustry players would say they have to account for transportation, marketing and other expenses - not to mention taxes, which vary from province to province.4 n+ C" T Z4 Y. r' j7 }, m0 u* ~
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But those oil companies - private-sector players in a free-market system - also want to turn a profit.1 H# b; s# W8 t* S" _
( J4 O% r' N) q. e" u) {# F"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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# d) w) W) D" Z"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.": K2 i6 X( d1 A+ F6 p1 U. y/ O( G5 l) Z/ h
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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 $42.57 on Friday.
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`% A, a( A H, R) S- f"(The oil companies) might have realized that while prices were low in the last couple of weeks, they knew that there was going to be a correction," Hirsch said.- d0 i: k0 A# n n: {
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Hirsch expects pump prices to bounce between 60 and 90 cents per litre over the next few months, but not retesting the heights of last summer.
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"I'm not seeing a lot of strengthening in crude oil prices over the next six months," he said.4 v5 X# i4 z P2 w# }2 T1 V; o
6 O( O4 S+ u; }"In the next six months I would expect to see gasoline prices more or less in the range they're in now, maybe firming up a little bit towards the spring and summer driving season as demand rises."; t3 u2 [- X* V& @5 P6 D) I9 C
" } x( B- S" B$ p/ A0 WBut 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.. t {1 s( R; R
( `( V8 p; E% O! K. B+ ?4 H( l"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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* q, P% \1 a |"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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