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Gas prices are rising while crude prices are falling. What gives?
2 {1 v; u' [# SPublished: Friday, January 16, 2009 | 5:11 PM ET- H* G/ Z1 p" u' n# I$ ?2 M& p
Canadian Press NewsItem/NewsComponent/NewsLines/ByLine5 Y- S. e! W. U, W5 y
) ]4 k- P' t$ X0 y H: KCALGARY - With crude oil prices falling, motorists may wonder why gasoline prices are heading in the other direction.9 { F5 T* U# ?
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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.
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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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"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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. {. s0 N5 d6 NBut Friday's price is still a welcome respite from the $1.40-level gas many Canadian cities faced during the summer.
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, K- |: H3 M) ]1 ~" U"I definitely changed my habits in the summer. I was going to go on two road trips, which I did not go on by virtue of the fact that the prices were so high," Lawnikanis said. \' e. q* ]2 [! S7 u
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"Because of the fact that the prices are so reasonable, I've actually taken the liberty to drive more. I've really enjoyed doing more driving."3 B" U' t$ c2 b
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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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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.
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: A) |& U* {1 g/ d1 ], b. U; t: wThe 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.0 P* F4 w% w! e% E, z& P% c
4 s- Z7 p j. G- V7 H3 n"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.* c" L' E: D- O# s& V- F
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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.0 S+ l7 U6 Z/ x/ t
0 P4 Y( v# E% q! }( u/ d" `" LBut those oil companies - private-sector players in a free-market system - also want to turn a profit.
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"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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7 j( m1 f* G; v: ?8 a" a0 O+ N"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.8 f5 h& h) Z" e1 H1 }2 r
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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.
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" q2 d1 @9 r4 XHirsch 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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2 J0 P# x9 |4 b"I'm not seeing a lot of strengthening in crude oil prices over the next six months," he said.+ F; N6 U/ L0 h5 G
7 _- j9 k3 x0 I- t2 F"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."7 G# z( g4 e& ~3 Y
5 B6 _0 e0 P+ h. J, ~5 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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"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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