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Gas prices are rising while crude prices are falling. What gives?1 t4 M4 w( u: P, u8 p
Published: Friday, January 16, 2009 | 5:11 PM ET* R. h' Q# I R5 W) y
Canadian Press NewsItem/NewsComponent/NewsLines/ByLine( d$ w& Q; q% ^6 j# o) C& I
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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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% r% {$ c7 _; \( U1 t2 S; ^% FThe 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.$ f% Q4 o; T5 S
) B. }" x+ m2 H. DCalgarians were paying on average 81.5 cents per litre - about a four-cent jump in just one day.+ e4 | t, J7 D" ^
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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.+ E! O( H; O; [+ v3 {# @! c4 A% \
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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.7 I4 L5 @6 ]+ Y5 o0 B
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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.
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* }5 m; C) m5 r. r) {8 i7 H"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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& o; c- r/ L/ K/ dThe February contract for crude oil settled at US$36.51 on the New York Mercantile Exchange, down from more than US$50 a barrel a week ago.0 O+ H5 H3 O4 U) O$ B! t
7 L4 U6 m( n# V" z"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 Z% }% e8 t- Q( w3 S4 ]
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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.) h% h% u+ o3 a; H7 F# _% e
. t! f1 g$ Y& ]" t6 TBut 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.8 F3 }6 ]; V" u
1 W* V+ Z; M# \/ c/ x9 T. x"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 $42.57 on Friday.
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"(The oil companies) might have realized that while prices were low in the last couple of weeks, they knew that there was going to be a correction," Hirsch said.
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Hirsch expects pump prices to bounce between 60 and 90 cents per litre over the next few months, but not retesting the heights of last summer.# `6 G2 [4 J8 S5 C% X8 }
4 V/ x# D G" Z- {2 v, G"I'm not seeing a lot of strengthening in crude oil prices over the next six months," he said.% B% e# q: p6 f# U9 r: s
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"In the next six months I would expect to see gasoline prices more or less in the range they're in now, maybe firming up a little bit towards the spring and summer driving season as demand rises."! Z( | a( I9 }( m. s$ |
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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." E3 M/ K( d' p# S; r' g
_6 u7 {1 F" N2 u+ j6 x: G2 W"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.0 x! l+ o* t5 {
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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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