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Gas prices are rising while crude prices are falling. What gives?
) |; t% ~9 {" C4 I& Z# GPublished: Friday, January 16, 2009 | 5:11 PM ET
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. M- n( Z8 V; S4 k" u# fCALGARY - With crude oil prices falling, motorists may wonder why gasoline prices are heading in the other direction.0 Z3 s z: ?; o+ W- M
, R+ n# }& \$ P x/ _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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$ u; e/ G9 [) g! }5 b2 _8 Y1 @Calgarians were paying on average 81.5 cents per litre - about a four-cent jump in just one day.9 h2 P; e4 N4 |: a! Z
% p) n% w8 Z& k9 o; x8 `, u* ]2 a"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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/ e s* O) |! F- o1 aBut Friday's price is still a welcome respite from the $1.40-level gas many Canadian cities faced during the summer.
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4 u c2 \& N& v; i"I definitely changed my habits in the summer. I was going to go on two road trips, which I did not go on by virtue of the fact that the prices were so high," Lawnikanis said.
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"Because of the fact that the prices are so reasonable, I've actually taken the liberty to drive more. I've really enjoyed doing more driving."1 x# Q+ U/ p3 {6 O
6 e3 M9 Z$ C XIn 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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x6 x' l9 I( LVancouver, which has higher gas taxes than other cities, has prices of 94.7 per litre, up from 87.5 a week ago.. l$ s. ^+ X L' |9 l9 f
* @- s5 p# p' B" ]8 l ^- vThe 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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7 f& X# t7 [# ]+ A) T3 ^The February contract for crude oil settled at US$36.51 on the New York Mercantile Exchange, down from more than US$50 a barrel a week ago.3 ~ q4 s. }3 K
% @" ]& v) K6 `) {5 b"Crude oil is an important input into the distillation of gasoline. But there's a lot of other factors as well," said Todd Hirsch, senior economist with ATB Financial in Calgary.
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( S* g/ g8 i/ v8 j1 ?Industry players would say they have to account for transportation, marketing and other expenses - not to mention taxes, which vary from province to province.
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; |* G3 h' D5 H! LBut those oil companies - private-sector players in a free-market system - also want to turn a profit./ M1 J+ |+ w2 {1 K" V$ R2 c
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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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"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.". l" N" n+ {% i+ C7 a+ e3 f# ^
& {; r- [( o0 j7 H; Q( nAnother explanation could be that the February contract for crude oil expires on Tuesday, and the contract for March is already significantly higher, settling at $42.57 on Friday.3 m f q5 M, O: k5 C1 f$ R
. }7 X, x7 s9 L, K"(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.* v, q ~6 r P( y4 v' f( D
# m* c, |& U" }) B' lHirsch 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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"I'm not seeing a lot of strengthening in crude oil prices over the next six months," he said.
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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."0 L, W! X3 l; {8 ]# n( J' ~
( m" @& h2 E& q8 U- p' G0 ~& M7 ]% hBut 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.* a1 X( f! w) A1 A3 D/ J
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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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' g8 `7 e5 {! [( q: q. L# q: ~"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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