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Gas prices are rising while crude prices are falling. What gives?
3 A$ |. n/ ~- v! D' U# r; }' lPublished: Friday, January 16, 2009 | 5:11 PM ET/ E3 r2 Q, A5 Y2 d
Canadian Press NewsItem/NewsComponent/NewsLines/ByLine
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, g6 j& R: h* v' o1 C8 {CALGARY - 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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0 R8 f5 t" Q3 qCalgarians were paying on average 81.5 cents per litre - about a four-cent jump in just one day.9 \0 _! ?3 x1 o' X2 g8 P- X
! a" f1 P6 R) y) ~* v6 l( V6 Y4 }"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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* T* T/ s: v' v5 p: L# `But Friday's price is still a welcome respite from the $1.40-level gas many Canadian cities faced during the summer.
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3 h% k" u7 c A7 k, U4 O, w/ ["I definitely changed my habits in the summer. I was going to go on two road trips, which I did not go on by virtue of the fact that the prices were so high," Lawnikanis said.
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" ^$ Q) z3 z8 B' v6 U5 F"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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+ a6 E% Y7 q7 `. S: [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.+ j8 F' x. ?, Z
0 C) D' J( v- ?$ A& R% G( f% \( FVancouver, which has higher gas taxes than other cities, has prices of 94.7 per litre, up from 87.5 a week ago.: R& T* X6 o4 ?
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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.7 \- K& E0 W9 B% ~1 ?. [! C
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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$50 a barrel a week ago.
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"Crude oil is an important input into the distillation of gasoline. But there's a lot of other factors as well," said Todd Hirsch, senior economist with ATB Financial in Calgary.
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Industry players would say they have to account for transportation, marketing and other expenses - not to mention taxes, which vary from province to province.
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3 P( a& h+ M) J/ y9 K. t) ABut those oil companies - private-sector players in a free-market system - also want to turn a profit.
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"Without question those gasoline prices are going to be the highest they think they can get away with without their competitor undercutting them," said Hirsch.: `1 I. [ }& F4 \3 P! l! d
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"They're out to maximize their profits for their shareholders. I don't think there's anything evil going on in them trying to get the highest price. Every retailer in the country does this."
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0 d j5 D3 \4 v+ q) w' Z0 T$ oAnother explanation could be that the February contract for crude oil expires on Tuesday, and the contract for March is already significantly higher, settling at $42.57 on Friday.
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9 x7 r1 |: L, D: x2 m4 f, X; z"(The oil companies) might have realized that while prices were low in the last couple of weeks, they knew that there was going to be a correction," Hirsch said.
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Hirsch expects pump prices to bounce between 60 and 90 cents per litre over the next few months, but not retesting the heights of last summer.
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"I'm not seeing a lot of strengthening in crude oil prices over the next six months," he said.
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"In the next six months I would expect to see gasoline prices more or less in the range they're in now, maybe firming up a little bit towards the spring and summer driving season as demand rises."
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9 ^' k+ M: d6 P1 w9 S3 H) V: vBut Gasbuddy.com co-founder Jason Toews said he sees gas prices going higher than their current levels because of a slowdown in Alberta's oilsands and expected production cuts by the Organization of Petroleum Exploring Countries.
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J- k/ ^; B. B, ]8 R+ C' \"With lower supplies of crude oil in the market it's going to push crude oil prices up, especially if the economy starts to recover a little bit," Toews said.2 Q" k/ f/ o3 i$ i
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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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