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Gas prices are rising while crude prices are falling. What gives?
0 C- X6 l! A3 \Published: Friday, January 16, 2009 | 5:11 PM ET
6 [/ X% q6 R* w) [/ ^) H' t% DCanadian Press NewsItem/NewsComponent/NewsLines/ByLine
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6 S0 O, \/ P: a5 mCALGARY - With crude oil prices falling, motorists may wonder why gasoline prices are heading in the other direction.3 ~/ C; m: x. \0 K, b6 V
6 z2 Q# p6 ], D4 S# mThe 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.6 f& b5 D9 o) X* ?3 ]9 T
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Calgarians were paying on average 81.5 cents per litre - about a four-cent jump in just one day.
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: x* E5 a9 l! O6 ?# M) m"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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& S; M$ V) K9 n5 ]But Friday's price is still a welcome respite from the $1.40-level gas many Canadian cities faced during the summer.9 q9 y3 x [- p3 ?. F8 f
7 y' h) y! M. S- ?- R) p"I definitely changed my habits in the summer. I was going to go on two road trips, which I did not go on by virtue of the fact that the prices were so high," Lawnikanis said.
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"Because of the fact that the prices are so reasonable, I've actually taken the liberty to drive more. I've really enjoyed doing more driving."
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In Toronto Friday, pump prices were 80.9 cents per litre. On Thursday they were 79.4 and a week ago they were 74.2.% m; Q( x. v0 ]0 d* K& q1 r
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Vancouver, which has higher gas taxes than other cities, has prices of 94.7 per litre, up from 87.5 a week ago.# D* ?2 O$ `: O: Z- ]) A
( `& M3 @0 N" W/ oThe 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.8 J) J& u7 Q0 c: z1 Q5 z0 E
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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.
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1 _! h7 z0 \( T# Q* i+ wIndustry 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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( a+ g5 v6 q* ]% eBut those oil companies - private-sector players in a free-market system - also want to turn a profit.
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; R& W1 |4 s/ q% O3 J"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."
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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 $42.57 on Friday.- P7 t: N7 m8 X( M7 j7 e
' b ?' B- l! t* ^4 x" s"(The oil companies) might have realized that while prices were low in the last couple of weeks, they knew that there was going to be a correction," Hirsch said.
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9 O" ~- Y9 p% h- i5 j2 {Hirsch expects pump prices to bounce between 60 and 90 cents per litre over the next few months, but not retesting the heights of last summer.( p* X X# s$ ^ F. w0 h
2 V' K( u" [+ s. ~: D& l"I'm not seeing a lot of strengthening in crude oil prices over the next six months," he said.5 q& l& j+ l) Z- [5 O
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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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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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# g- D/ m' e }8 _7 `' i& l2 f2 A"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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5 t/ u' [: g( ^" D"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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