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Gas prices are rising while crude prices are falling. What gives?
& X0 ^% ^: a* r% c+ G" f8 iPublished: Friday, January 16, 2009 | 5:11 PM ET7 V+ V7 D& G+ y( F( r1 Q
Canadian 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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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.5 T8 Y. a& D8 G+ B- X" Y+ I- j# e
3 {- s# {% h3 E' w$ L! k# ECalgarians were paying on average 81.5 cents per litre - about a four-cent jump in just one day.5 y( s/ @. Z' B
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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.& a+ B& r/ C5 w* Z0 \
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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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) T, f2 B* V) V# M"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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* h+ B; l0 ~6 }. q( q9 ]"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) u' x/ d1 M5 a
* o; j& h% N. P- A0 I; UIn Toronto Friday, pump prices were 80.9 cents per litre. On Thursday they were 79.4 and a week ago they were 74.2.( ~. K m) U q3 d% b- r
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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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# k2 k0 b* `: W; \. i4 X3 sThe price of crude oil, the main ingredient in gasoline, has been dropping steeply since it's peak of $147 reached in July.
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' ~% ~$ X, N w5 g4 UThe February contract for crude oil settled at US$36.51 on the New York Mercantile Exchange, down from more than US$50 a barrel a week ago.
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& h/ m9 ]$ Z4 K" a"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." }, B- _( |0 G, u
) T+ i5 [" }. F3 Y' PIndustry players would say they have to account for transportation, marketing and other expenses - not to mention taxes, which vary from province to province." K# y' x' f* i4 p
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But those oil companies - private-sector players in a free-market system - also want to turn a profit.6 d) o( `3 D9 Z4 u5 B/ K) W2 Q4 ^
) Q0 m' o/ Z+ O7 T z& P* s: `' y"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."
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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 $42.57 on Friday.
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; e0 h4 F5 A; U5 `"(The oil companies) might have realized that while prices were low in the last couple of weeks, they knew that there was going to be a correction," Hirsch said.. i$ @# k# c* m6 T/ \: n% J
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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."
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- n3 T4 z, l4 h6 L1 ?! M' CBut 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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"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/ }) Y0 E" g! @+ [" v7 f"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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