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Gas prices are rising while crude prices are falling. What gives?
% x. I o; S: i+ }Published: Friday, January 16, 2009 | 5:11 PM ET/ a4 Y1 p5 Z/ f1 d, _8 \0 N, z
Canadian Press NewsItem/NewsComponent/NewsLines/ByLine
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CALGARY - With crude oil prices falling, motorists may wonder why gasoline prices are heading in the other direction.9 u( b& D* m* a
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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.3 ^7 N! ]; p8 e {, n! j1 E$ X
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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.
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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.( o2 E/ o) Q* q( l; O2 O
: Y+ k& l: a _; q- W% z( t' S S"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."
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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.
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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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The price of crude oil, the main ingredient in gasoline, has been dropping steeply since it's peak of $147 reached in July.
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" J3 f0 z; `1 t$ S d8 {; qThe February contract for crude oil settled at US$36.51 on the New York Mercantile Exchange, down from more than US$50 a barrel a week ago.
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& G7 ]& O: k8 v" I& n"Crude oil is an important input into the distillation of gasoline. But there's a lot of other factors as well," said Todd Hirsch, senior economist with ATB Financial in Calgary.8 h1 M7 R+ Y, L; [4 s
* b' |. v6 r5 W* c1 P# `! E1 B2 bIndustry players would say they have to account for transportation, marketing and other expenses - not to mention taxes, which vary from province to province.
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But those oil companies - private-sector players in a free-market system - also want to turn a profit.
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"Without question those gasoline prices are going to be the highest they think they can get away with without their competitor undercutting them," said Hirsch.
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' H+ ~) ]7 X" k"They're out to maximize their profits for their shareholders. I don't think there's anything evil going on in them trying to get the highest price. Every retailer in the country does this."
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! j |4 A* I- c8 N3 P$ G( ?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 $42.57 on Friday.$ t G& ^8 {5 a+ s) d$ k
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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.# \ {4 `2 F+ L) B& Y! x
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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.% f u9 e! J, L0 e6 @/ s$ x
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"I'm not seeing a lot of strengthening in crude oil prices over the next six months," he said.& E* l& D) @* D* r _
& p6 |' R. |6 c- h/ H( E"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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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.
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9 \) _6 g6 B! g"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.8 H) j' O3 Y3 D* D ^
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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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