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Gas prices are rising while crude prices are falling. What gives?
* n' R2 ~9 c5 BPublished: Friday, January 16, 2009 | 5:11 PM ET' e2 I! W& h8 }* Y
Canadian Press NewsItem/NewsComponent/NewsLines/ByLine
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& y( L0 J( \5 L* @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.8 b6 a) b$ g8 T3 p5 R2 C3 A @
( {0 v2 T- @, a1 v% v! UCalgarians were paying on average 81.5 cents per litre - about a four-cent jump in just one day.$ B, s1 ^. b1 j1 `2 U5 C7 L5 M
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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 $1.40-level gas many Canadian cities faced during the summer.& b9 H7 h' C; V; b% T* f+ C) O
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"I definitely changed my habits in the summer. I was going to go on two road trips, which I did not go on by virtue of the fact that the prices were so high," Lawnikanis said.* Y( ^4 L2 y+ M& ~! m) K" P
. b8 [. F% m1 u1 Q9 S/ S( C0 t"Because of the fact that the prices are so reasonable, I've actually taken the liberty to drive more. I've really enjoyed doing more driving."- t& X& _" S/ S! I' f! L% O/ c% L- Z3 R
8 P4 T& H6 u. C; ZIn Toronto Friday, pump prices were 80.9 cents per litre. On Thursday they were 79.4 and a week ago they were 74.2.2 A( `# K" ~' F6 ?3 f
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Vancouver, which has higher gas taxes than other cities, has prices of 94.7 per litre, up from 87.5 a week ago.$ Q$ Y X5 t4 E2 O- e; q
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The price of crude oil, the main ingredient in gasoline, has been dropping steeply since it's peak of $147 reached in July.& w' O7 R2 n9 }4 U$ P2 ~! j+ Z
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The February contract for crude oil settled at US$36.51 on the New York Mercantile Exchange, down from more than US$50 a barrel a week ago./ k9 L0 ?$ ^: h6 v( w
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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.( F6 D6 j# \! R
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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.
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# k' ?- D( X" X: c( YBut 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.* `0 @4 u9 k4 x1 F8 ?
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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."7 X% R/ [# B% K$ t6 y, f" h
. W! b3 [6 e _- ?$ \% q0 ZAnother explanation could be that the February contract for crude oil expires on Tuesday, and the contract for March is already significantly higher, settling at $42.57 on Friday.1 ?$ r: |6 i3 \. I( Z
5 N. ~) P! ]" x" v, x+ V) B"(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.1 {( P9 h! r7 S6 P# w
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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.8 T9 W2 E p0 v1 D
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"I'm not seeing a lot of strengthening in crude oil prices over the next six months," he said., X* W$ r9 e9 {- y* q
8 s6 P3 ]+ _& k! m5 r9 a. P"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."$ N& g! \% a" o* f9 n
6 v+ E: H% V# X2 V1 B- MBut 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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4 R& b5 ~' W% n6 X' i" g$ I"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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