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Gas prices are rising while crude prices are falling. What gives?- @; k6 s. q1 |. y
Published: Friday, January 16, 2009 | 5:11 PM ET" D3 o, V; V6 T" `
Canadian Press NewsItem/NewsComponent/NewsLines/ByLine
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! e w' K& }4 a5 H1 H1 ]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.! G: i/ ^8 P4 b6 l8 h% Z1 @
, W0 n: {4 [$ U, G& z( c" JCalgarians were paying on average 81.5 cents per litre - about a four-cent jump in just one day.
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* c7 T5 H, j n9 R# @$ I9 X7 _0 |"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.( @* k( m( ~6 m/ x7 K; q
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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.3 O1 v/ }) I" F; |& l# z, P
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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."
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+ o; p% L# W/ x' U( M( n6 x) {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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& e' K8 N5 G/ PVancouver, which has higher gas taxes than other cities, has prices of 94.7 per litre, up from 87.5 a week ago.7 [' w1 n; a6 D
4 e0 |4 L5 M+ CThe price of crude oil, the main ingredient in gasoline, has been dropping steeply since it's peak of $147 reached in July.
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+ q3 |( N9 F; F$ q5 B: F$ _The February contract for crude oil settled at US$36.51 on the New York Mercantile Exchange, down from more than US$50 a barrel a week ago.
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1 j3 [* x) q. g0 V0 C4 {; |9 w. D"Crude oil is an important input into the distillation of gasoline. But there's a lot of other factors as well," said Todd Hirsch, senior economist with ATB Financial in Calgary.
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Industry players would say they have to account for transportation, marketing and other expenses - not to mention taxes, which vary from province to province.
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. F* Q* w& H/ }1 oBut those oil companies - private-sector players in a free-market system - also want to turn a profit.& o& r& D9 p0 d8 u
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"Without question those gasoline prices are going to be the highest they think they can get away with without their competitor undercutting them," said Hirsch.* e% i- ~1 ^' Z& D: S
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"They're out to maximize their profits for their shareholders. I don't think there's anything evil going on in them trying to get the highest price. Every retailer in the country does this."3 r& L/ J: b- j7 P- ^$ n. o
# \+ }; \ _- V" xAnother explanation could be that the February contract for crude oil expires on Tuesday, and the contract for March is already significantly higher, settling at $42.57 on Friday.
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2 M; h5 q& _$ I7 u( ^& }) F"(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./ y* P" V/ r) c T
. Q( W# ]/ C+ s6 \* _6 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.) J4 o# H+ ^9 X
8 e7 K8 }" w# p. |# X"I'm not seeing a lot of strengthening in crude oil prices over the next six months," he said.
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; `+ Z/ Z$ M: l- V: r4 }"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."$ O; T' T3 v) x- E
% s d# g, R; U6 LBut 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.3 ^/ _/ M) o- Q% r3 z& P7 S' e( P. r
. F1 K% W3 r& ?7 e& v+ M"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.( v2 L; u* @5 _( c
- r; d9 L1 \! Z" K- d+ d$ K: o"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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