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Gas prices are rising while crude prices are falling. What gives?5 k1 }$ C1 t O* L
Published: Friday, January 16, 2009 | 5:11 PM ET+ `0 S- U! ^9 v2 I' G0 R6 ~; ^
Canadian Press NewsItem/NewsComponent/NewsLines/ByLine2 }, D) g8 y& p; ]& Z
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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.
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; b! W5 d$ a+ {8 N- H" oCalgarians were paying on average 81.5 cents per litre - about a four-cent jump in just one day.2 X1 z' V9 B; ^9 z& e
" P' l# v5 j- t- ?3 ]"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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8 ?& l0 Z0 h0 u3 H5 G& CBut Friday's price is still a welcome respite from the $1.40-level gas many Canadian cities faced during the summer.5 p. u: N+ a* I5 W
4 i& j8 n3 o T, a"I definitely changed my habits in the summer. I was going to go on two road trips, which I did not go on by virtue of the fact that the prices were so high," Lawnikanis said.
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$ b# o$ g5 j0 K0 t+ ~' X0 K"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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9 d6 n. b6 K5 C, `In Toronto Friday, pump prices were 80.9 cents per litre. On Thursday they were 79.4 and a week ago they were 74.2.8 o" N4 c1 p3 Y+ O/ A
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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.* D. K# e5 d: V- W' ?
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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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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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"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.1 f4 [4 f% s9 E* ^. z" {) Y
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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.& c* K- b |/ O* W3 m
7 q& a0 Y0 ~2 oBut those oil companies - private-sector players in a free-market system - also want to turn a profit.: b: ~: G& K% y% r8 G/ ?5 Q' h' e
& A4 `- r. U" Z- y- o9 n9 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."8 X2 w0 Y- w1 ]
8 x) p y% n7 rAnother explanation could be that the February contract for crude oil expires on Tuesday, and the contract for March is already significantly higher, settling at $42.57 on Friday.$ \, f( n7 m( f8 a# j& M# W+ A
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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.6 P$ d+ c" ?' [
; _! `* i6 ^3 P) D* i4 _; D5 EHirsch 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.0 w6 e R7 ]' R! i6 j O
+ ` g: V2 k1 `3 A+ z"I'm not seeing a lot of strengthening in crude oil prices over the next six months," he said.
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5 J8 v j; Z6 G A, ~* n4 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."
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' @& y+ Q9 d$ [# O0 h2 [, r' iBut 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.1 n9 C3 Q* Q& L! ]. S1 d1 o( ?! g
' V$ f ]$ g# J; P"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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