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Gas prices are rising while crude prices are falling. What gives?+ s+ y& T- Z! z. A# ^& M/ ]$ z
Published: Friday, January 16, 2009 | 5:11 PM ET
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CALGARY - With crude oil prices falling, motorists may wonder why gasoline prices are heading in the other direction.- S( w* g- e- Z+ E
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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.7 C, E/ I+ l" a1 J
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Calgarians were paying on average 81.5 cents per litre - about a four-cent jump in just one day.+ F. g @, X/ X3 h
: W0 P- G2 ?5 p6 k"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.; B9 d4 o8 r/ h1 ]0 `, @8 |- C
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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.
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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.- c5 X3 |1 C& u; Z5 x1 e( r0 q+ @
# r- O9 S0 d& n+ |"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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. ?1 }8 \! q6 bThe February contract for crude oil settled at US$36.51 on the New York Mercantile Exchange, down from more than US$50 a barrel a week ago.8 `3 k% p( Q3 n) i4 g: g5 w& }
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"Crude oil is an important input into the distillation of gasoline. But there's a lot of other factors as well," said Todd Hirsch, senior economist with ATB Financial in Calgary.
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Industry players would say they have to account for transportation, marketing and other expenses - not to mention taxes, which vary from province to province.# P u0 {/ d8 I7 W% q
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But those oil companies - private-sector players in a free-market system - also want to turn a profit./ P0 d, s* v# l) |
9 F6 r7 r1 u' u! b"Without question those gasoline prices are going to be the highest they think they can get away with without their competitor undercutting them," said Hirsch.
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* H7 c$ y6 d$ A0 y& B"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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; R q- J2 A; x& E c- V8 y. {7 YAnother explanation could be that the February contract for crude oil expires on Tuesday, and the contract for March is already significantly higher, settling at $42.57 on Friday.
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"(The oil companies) might have realized that while prices were low in the last couple of weeks, they knew that there was going to be a correction," Hirsch said.
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% p3 ^* w, R7 \5 |, f; A$ U& GHirsch 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.* P& B( o. N/ B5 p
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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.# e1 m6 p% h$ _1 K% `
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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.% W4 N6 O% C v: F
. @2 m+ x( e0 a) d/ Q7 z- h: T"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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