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Gas prices are rising while crude prices are falling. What gives?
$ x4 C+ V( U' @' Q5 P7 ?5 n( i! C7 }Published: Friday, January 16, 2009 | 5:11 PM ET
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J% d$ V1 h. N. wCALGARY - 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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Calgarians 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.
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But Friday's price is still a welcome respite from the $1.40-level gas many Canadian cities faced during the summer.. Q( {9 _. o4 d* c
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"I definitely changed my habits in the summer. I was going to go on two road trips, which I did not go on by virtue of the fact that the prices were so high," Lawnikanis said.+ l; V' u: n4 |
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"Because of the fact that the prices are so reasonable, I've actually taken the liberty to drive more. I've really enjoyed doing more driving." H/ }. b! q9 i- f2 f
6 w7 v6 h6 s# ~* H, GIn Toronto Friday, pump prices were 80.9 cents per litre. On Thursday they were 79.4 and a week ago they were 74.2.
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6 j3 z% y) w- X8 D+ j( _Vancouver, which has higher gas taxes than other cities, has prices of 94.7 per litre, up from 87.5 a week ago.5 `+ }# N+ q" j& v* A! Y" q& d$ s$ E
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The price of crude oil, the main ingredient in gasoline, has been dropping steeply since it's peak of $147 reached in July.
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# _$ V# d8 q+ |- M: Y( [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.; t, j g5 l. ?4 T& ]
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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.7 \9 T( Q1 f# b v# B
. E: G, O4 m( ]7 _8 sBut those oil companies - private-sector players in a free-market system - also want to turn a profit.
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: H* g7 K6 m/ Z8 n+ L"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 $42.57 on Friday.
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; f( G1 a2 q2 G5 l" e m7 s- ~"(The oil companies) might have realized that while prices were low in the last couple of weeks, they knew that there was going to be a correction," Hirsch said.
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" a, B8 ~( S. H0 LHirsch expects pump prices to bounce between 60 and 90 cents per litre over the next few months, but not retesting the heights of last summer.
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"I'm not seeing a lot of strengthening in crude oil prices over the next six months," he said.. S. Y% n0 ^$ i( n' J" T9 G
& l- m! y; G: @8 k"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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8 z9 q6 {: @9 j* yBut 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.) C5 v: M3 ~# C- q2 }5 s
( \# _8 d- B7 \" 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.+ w. x5 x8 R! i: N$ u) g8 p4 {: ]2 N
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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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