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Gas prices are rising while crude prices are falling. What gives?
4 |5 w' q' h4 ~( j% i2 d: E. xPublished: Friday, January 16, 2009 | 5:11 PM ET; b; {3 n2 }# D' `
Canadian Press NewsItem/NewsComponent/NewsLines/ByLine6 N5 @, j& [0 G6 U
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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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, s x, N# q3 _* f2 y/ W) G& WThe 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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' u7 I% t! o @5 j1 SCalgarians were paying on average 81.5 cents per litre - about a four-cent jump in just one day.
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1 [8 O& s3 w: i, w# O/ Y! k"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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. K% I* K1 U' D$ E9 KBut Friday's price is still a welcome respite from the $1.40-level gas many Canadian cities faced during the summer.5 Y' R3 r8 @& f/ g z) [9 A, q( Y9 i
/ S0 E7 y5 X" d% F! P$ Z, c; u5 Z"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.9 \' U( q3 q8 U. n/ G
) I% `& c' L% c& R# ["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 P5 W7 ]# n6 p
* K& z3 A; S) _$ E1 B) q8 vIn Toronto Friday, pump prices were 80.9 cents per litre. On Thursday they were 79.4 and a week ago they were 74.2. X* Z: r9 A' q# G- {5 I9 M8 X
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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.) ^! ^9 v# v2 x' z' p1 I D, d, b
. o. V: S) f% |9 y1 e! j& ?& h" ZThe price of crude oil, the main ingredient in gasoline, has been dropping steeply since it's peak of $147 reached in July.% e4 ^- b! R V q; b5 {( a( P
! p1 H) A' J- u( H. S# JThe 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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/ ]7 |- a p4 [) ]"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.3 L, e6 n* d& l3 q) f/ h9 ~
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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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4 v7 D' x1 l( `But those oil companies - private-sector players in a free-market system - also want to turn a profit.+ a3 C, a! k! _0 w
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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.* R6 L `6 a5 m9 \
! I3 u- k* U& D"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." V- i. `4 I6 }5 P& j1 B
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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 $42.57 on Friday.
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3 `. c$ u- q' ]1 X+ k"(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.) p! z/ d& H/ r4 H; y
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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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% z% e3 H8 N. J% t9 G) l* e"I'm not seeing a lot of strengthening in crude oil prices over the next six months," he said.' L% {' l+ ] E1 Z3 j
S: z! [, t6 D2 R1 Z- ~0 v$ 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."
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8 N- e, }# }3 l3 C3 X" NBut 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.7 _5 ` b0 A5 L3 G- s9 F) H- F9 Q
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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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, o! l9 j; J6 L"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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