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Gas prices are rising while crude prices are falling. What gives?1 y$ O! ~7 A1 o7 T5 {
Published: Friday, January 16, 2009 | 5:11 PM ET
/ D0 ?) U( \' MCanadian Press NewsItem/NewsComponent/NewsLines/ByLine) |& l. X [" }; y
9 s9 S4 l( U7 H9 k+ G2 LCALGARY - With crude oil prices falling, motorists may wonder why gasoline prices are heading in the other direction.- P/ b% e6 D3 u( n E
. ?5 J- ]2 c( [! e8 [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.- g7 z' M p- ?# v5 [6 B0 `
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Calgarians were paying on average 81.5 cents per litre - about a four-cent jump in just one day., [( O" Z4 N& B+ Z0 D' p4 p! O
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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 $1.40-level gas many Canadian cities faced during the summer.9 ]( A" s% k+ M* |" y' H; z( N; @0 ~
+ K0 M: S0 k9 {$ n4 k"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.8 P% b' N; x, I+ z; y$ S$ o |2 w
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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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4 v" j7 X) l& K1 @; H) MIn Toronto Friday, pump prices were 80.9 cents per litre. On Thursday they were 79.4 and a week ago they were 74.2.3 p9 p3 V" ?4 x7 k, T5 A
* V) g- ~5 z7 f4 H' Z, B; [& KVancouver, 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.. P. y# V; b; o6 I, Z. }
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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$50 a barrel a week ago.5 _, D. [3 V5 O
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"Crude oil is an important input into the distillation of gasoline. But there's a lot of other factors as well," said Todd Hirsch, senior economist with ATB Financial in Calgary., g! |) c' m7 Q% J M' |
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Industry players would say they have to account for transportation, marketing and other expenses - not to mention taxes, which vary from province to province.+ X G4 i/ z8 W: Z/ j, C. N
) V! X/ X! h! t/ _' F( l' _! ZBut those oil companies - private-sector players in a free-market system - also want to turn a profit.% M* y) w$ j- |7 I( J' s7 l
. Q3 X1 {) c9 t3 H+ Y3 G; ~4 L& Q# e"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.7 t( [. }& w) G4 }( L# A
8 F2 r9 y% `- a: G"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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' \8 X& h5 Z3 `$ y& ~% J( lAnother explanation could be that the February contract for crude oil expires on Tuesday, and the contract for March is already significantly higher, settling at $42.57 on Friday.
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"(The oil companies) might have realized that while prices were low in the last couple of weeks, they knew that there was going to be a correction," Hirsch said.; A$ l1 Q, n: k( `* a3 P. a
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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.
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* C" X% |. B# e# c( Z1 i2 ^"I'm not seeing a lot of strengthening in crude oil prices over the next six months," he said.! Y" v. x {. K4 K# t1 {
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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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6 I% S2 }, t! \2 RBut 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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"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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7 l. T. B) n3 l; `! }5 t( y"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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