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Gas prices are rising while crude prices are falling. What gives?
* |4 z7 l: l- r9 j3 o7 E7 q/ {Published: Friday, January 16, 2009 | 5:11 PM ET
1 N$ Y9 G1 L0 B8 mCanadian Press NewsItem/NewsComponent/NewsLines/ByLine4 ]) Z; q. E1 \. u
" W& Y: j, N& T0 c$ ~1 MCALGARY - With crude oil prices falling, motorists may wonder why gasoline prices are heading in the other direction.
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( F) j/ `4 J' f4 r9 p- QThe 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." |/ y- }% G' N/ p3 Q
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Calgarians were paying on average 81.5 cents per litre - about a four-cent jump in just one day.4 R# a$ O. c3 k/ y
; n: h5 t' a" k6 c0 |7 w"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.' h. A; g# L6 l
! F# s2 X) Y" a+ g7 {3 Q& d% u! hBut Friday's price is still a welcome respite from the $1.40-level gas many Canadian cities faced during the summer.
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"I definitely changed my habits in the summer. I was going to go on two road trips, which I did not go on by virtue of the fact that the prices were so high," Lawnikanis said.
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9 b) g2 I p& I) A"Because of the fact that the prices are so reasonable, I've actually taken the liberty to drive more. I've really enjoyed doing more driving."
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( \& W. {( V. KIn Toronto Friday, pump prices were 80.9 cents per litre. On Thursday they were 79.4 and a week ago they were 74.2.
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! [6 w! T+ [: [Vancouver, which has higher gas taxes than other cities, has prices of 94.7 per litre, up from 87.5 a week ago.4 a+ n. Z6 v& T8 R$ q. D3 D
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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.; r* v% B- i6 I' ^5 j- z
5 D3 u5 r8 i4 ^5 m' G- L2 v8 B7 o8 lThe February contract for crude oil settled at US$36.51 on the New York Mercantile Exchange, down from more than US$50 a barrel a week ago.
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$ q% {5 b& D; _$ d7 q J- p' e0 ^"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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Industry players would say they have to account for transportation, marketing and other expenses - not to mention taxes, which vary from province to province.; ~# F3 }9 p! o) N; S( T d
" m$ y5 Q1 V2 C: ~# j: m$ VBut those oil companies - private-sector players in a free-market system - also want to turn a profit.
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- o! F" F5 a& k"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.8 I$ _0 o7 ^4 N; B2 e0 z
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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 $42.57 on Friday.7 _) Q& Q1 q; ?0 `- S$ h7 j
% _7 I& R, o( Z9 | Q; C"(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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5 K) g& Z" ^4 a q3 z4 T# `' aHirsch 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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8 c6 F; F7 x O, V k"I'm not seeing a lot of strengthening in crude oil prices over the next six months," he said." e" f3 y8 j' q. l
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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."$ c; ?5 h* G& m) z' a4 ?
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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.' R' g/ i% }* K/ h0 s$ m2 x1 W
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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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4 x5 p" f7 b" Y& _6 ?"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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