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Gas prices are rising while crude prices are falling. What gives?
" {. _+ B. `4 MPublished: Friday, January 16, 2009 | 5:11 PM ET
. J& k" y! i2 e, R& mCanadian Press NewsItem/NewsComponent/NewsLines/ByLine3 ?+ P0 g' r9 Q7 S
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CALGARY - With crude oil prices falling, motorists may wonder why gasoline prices are heading in the other direction.& O5 W+ ~6 n& [
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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.! _; ?, N) B3 b
/ X+ P5 P5 Q' H# D$ sCalgarians 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./ v0 z; F7 `' N. Z3 U7 _
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But Friday's price is still a welcome respite from the $1.40-level gas many Canadian cities faced during the summer.5 p; x8 ^% n$ I: D/ ^: d
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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.
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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."2 W. N) s c5 G) m+ z
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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 74.2.4 d9 @- S- D( |0 @/ M9 @) Y6 N
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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.
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: Z7 U$ b2 T- [0 r5 Y, _- Z* aThe 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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6 G5 e4 T( W/ {5 {9 `( ^: \( sThe February contract for crude oil settled at US$36.51 on the New York Mercantile Exchange, down from more than US$50 a barrel a week ago.
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"Crude oil is an important input into the distillation of gasoline. But there's a lot of other factors as well," said Todd Hirsch, senior economist with ATB Financial in Calgary.5 y; ~. |1 g+ U" a% J
" R0 [! X( {5 F, Q8 {4 ]Industry players would say they have to account for transportation, marketing and other expenses - not to mention taxes, which vary from province to province.) ^. x( ], Y3 S: [1 K3 c( z1 C3 r
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But those oil companies - private-sector players in a free-market system - also want to turn a profit.
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: _, [8 a' s7 |"Without question those gasoline prices are going to be the highest they think they can get away with without their competitor undercutting them," said Hirsch./ l4 t7 U* I# }! s4 N5 x
# n4 }1 F& @9 c6 ?"They're out to maximize their profits for their shareholders. I don't think there's anything evil going on in them trying to get the highest price. Every retailer in the country does this."& j$ C8 t9 q# _0 @$ {* U1 d
0 `( k. h7 U7 [5 Y: M4 k: D% m* vAnother explanation could be that the February contract for crude oil expires on Tuesday, and the contract for March is already significantly higher, settling at $42.57 on Friday.# q* g" V r% n! X3 A& h
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"(The oil companies) might have realized that while prices were low in the last couple of weeks, they knew that there was going to be a correction," Hirsch said.$ b. B. g/ |, r# r7 K3 H' D
' Q, c0 S! N! K" p/ d& b7 s- MHirsch 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.4 Q. H. ]" |9 v4 y! ^7 b
/ h' o( }. j- g( t' h9 r"I'm not seeing a lot of strengthening in crude oil prices over the next six months," he said. }3 S' a, A) F9 w
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"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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# G5 D+ n% X2 E4 O E5 CBut 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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"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.: z3 T6 _0 T: b5 @3 A( I2 B
( G2 m3 c% e- d* o8 `0 w"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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