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Gas prices are rising while crude prices are falling. What gives?% | F0 u" Z7 k1 H' r0 O
Published: Friday, January 16, 2009 | 5:11 PM ET
, b0 b0 J) W {; ICanadian Press NewsItem/NewsComponent/NewsLines/ByLine
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; V* U4 ~8 K2 p& P {- ~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.- }$ C- f2 Z7 g8 v3 \5 Z6 S1 I
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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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5 Y) A$ r9 h) G7 }"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.; \ i7 q' l1 m. q* M6 Z# P4 j
# C$ `, W" y( a; HBut Friday's price is still a welcome respite from the $1.40-level gas many Canadian cities faced during the summer.; o; |+ L4 e+ {8 q+ h9 h* @7 _
1 l3 ~! S2 W2 y% r. P"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.* z, J( c9 V: U+ b% [5 \2 u1 L
; W! Q# n* M: w+ w- E* { v"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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5 m8 B& Q" _3 FIn Toronto Friday, pump prices were 80.9 cents per litre. On Thursday they were 79.4 and a week ago they were 74.2.! A2 V# l7 n4 ~# A
0 h: u; c+ ^& e9 _% ?. |4 tVancouver, 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.* g. Y2 Q) {! L- 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$50 a barrel a week ago.4 `3 E* C5 x. l. {; Q1 o3 e5 N2 g( y6 O
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"Crude oil is an important input into the distillation of gasoline. But there's a lot of other factors as well," said Todd Hirsch, senior economist with ATB Financial in Calgary./ p1 {3 k' K0 z# v0 x: _: I! S
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Industry players would say they have to account for transportation, marketing and other expenses - not to mention taxes, which vary from province to province.. { E+ I+ t1 D( p5 I* V
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But those oil companies - private-sector players in a free-market system - also want to turn a profit.. w; V, d# U/ I) j7 |( ]
: m$ ^& x, R% z* F3 P( N"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.# f) |; z3 t* X" m7 d$ j" x
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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."' |; T' W) a4 Y' 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 $42.57 on Friday.# R, b5 R7 Q, v1 Q0 g% u; @8 Y2 r
% C$ O) `8 U0 f) v$ o* r"(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. @$ L2 E) K3 q! V: J
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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, \1 K" j9 U1 t9 z/ |* l" Z"I'm not seeing a lot of strengthening in crude oil prices over the next six months," he said.
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, n# n9 B- P7 r( [* h"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."9 \( e2 G1 }" c
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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., Q; X8 ~, o' b5 H) I% q) O0 e
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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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