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Gas prices are rising while crude prices are falling. What gives?4 E% K7 K% i) L. {! D: [. u" e
Published: Friday, January 16, 2009 | 5:11 PM ET: q( b7 [& i; g1 d
Canadian Press NewsItem/NewsComponent/NewsLines/ByLine
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2 j A9 f4 W& Y( V' s: h1 cCALGARY - With crude oil prices falling, motorists may wonder why gasoline prices are heading in the other direction.. C9 S. R* G/ z! W$ K
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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.7 N4 E. t2 ?) @$ Z- I
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But Friday's price is still a welcome respite from the $1.40-level gas many Canadian cities faced during the summer.! _) v7 g" o1 N
1 |7 u" |) w% y1 K. F: j: |"I definitely changed my habits in the summer. I was going to go on two road trips, which I did not go on by virtue of the fact that the prices were so high," Lawnikanis said.
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"Because of the fact that the prices are so reasonable, I've actually taken the liberty to drive more. I've really enjoyed doing more driving.". N- o- U0 F, [1 i; p, W) C9 V
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In Toronto Friday, pump prices were 80.9 cents per litre. On Thursday they were 79.4 and a week ago they were 74.2.; I$ E, I/ ]9 ~. ` `. V: E
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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 e% c6 b4 c; O
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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.) }' S, ]: {5 Q( @1 M, h
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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.) }( ^0 N9 X; ?2 N/ J8 h+ w
+ l6 P3 E- S; _+ Q( k"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.( u3 L) S8 e ~, g
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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.8 [2 ~7 A( O1 S
& k% G* H( e# `: ]2 x w7 M, p8 VBut those oil companies - private-sector players in a free-market system - also want to turn a profit.2 Q! e- z' S8 \4 N }* C+ t2 k: V9 E2 S
" i- ^/ x) X/ w"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 $42.57 on Friday.
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- c. @5 X0 p; `% w$ p4 B" }1 A"(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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% q- ]: I4 u4 ^; l$ IHirsch 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., W0 _6 z: z% z& y. P0 E
/ q8 O) |* A- d' o( s; S"I'm not seeing a lot of strengthening in crude oil prices over the next six months," he said.
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- E, v: _$ n8 L$ {4 r; ]"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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5 k& Q) G2 Y; K* 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 @7 u4 L" D9 W+ W"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.' z9 \# ]7 Y1 I' K0 m
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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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