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Gas prices are rising while crude prices are falling. What gives?
, [4 |# d( ~+ p- v1 ?Published: Friday, January 16, 2009 | 5:11 PM ET
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! S0 f: }! b: U& ^CALGARY - With crude oil prices falling, motorists may wonder why gasoline prices are heading in the other direction.
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$ e! z8 r5 L2 E$ X SThe 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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5 K5 ~; D. ]3 V3 h0 v/ N: l* fCalgarians were paying on average 81.5 cents per litre - about a four-cent jump in just one day.% I# q I2 G$ {! e; I6 ?/ z
# l* L" e% m7 ~+ z" o9 x"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.; n% _7 e% l* |3 |% P$ i% S
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But Friday's price is still a welcome respite from the $1.40-level gas many Canadian cities faced during the summer.% a; k4 V4 H* q! W8 n, c% p
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"I definitely changed my habits in the summer. I was going to go on two road trips, which I did not go on by virtue of the fact that the prices were so high," Lawnikanis said.
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! B2 I9 U3 ^* G/ R"Because of the fact that the prices are so reasonable, I've actually taken the liberty to drive more. I've really enjoyed doing more driving."
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- v$ S' [) }4 Q/ e4 w* zIn Toronto Friday, pump prices were 80.9 cents per litre. On Thursday they were 79.4 and a week ago they were 74.2./ [& Y- u) v8 S: [# M- d
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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." f/ L5 L5 a1 y0 U& w& s) b% N
w c; h7 {4 U8 dThe 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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9 C2 b2 f3 D% _1 U- a2 L( t8 ?The February contract for crude oil settled at US$36.51 on the New York Mercantile Exchange, down from more than US$50 a barrel a week ago.0 t, a! s$ E. O8 s2 s8 ^ M" x
. y% a( E! H8 \. E"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./ h9 h8 Y3 y$ w! f+ u/ g' D
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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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But 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.) o: P' n, t8 h' P( \1 D/ Y& Y9 M
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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."' }. i. y/ V: s& x. A
* {1 Z2 H2 {3 q) K6 t( Z6 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 $42.57 on Friday.
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* q( T+ S- ]' Q9 W"(The oil companies) might have realized that while prices were low in the last couple of weeks, they knew that there was going to be a correction," Hirsch said." k" V! x% o/ V& e6 y
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Hirsch expects pump prices to bounce between 60 and 90 cents per litre over the next few months, but not retesting the heights of last summer.
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"I'm not seeing a lot of strengthening in crude oil prices over the next six months," he said.
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"In the next six months I would expect to see gasoline prices more or less in the range they're in now, maybe firming up a little bit towards the spring and summer driving season as demand rises."
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! ?7 \/ S# z/ c/ G0 NBut Gasbuddy.com co-founder Jason Toews said he sees gas prices going higher than their current levels because of a slowdown in Alberta's oilsands and expected production cuts by the Organization of Petroleum Exploring Countries.
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"With lower supplies of crude oil in the market it's going to push crude oil prices up, especially if the economy starts to recover a little bit," Toews said.
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$ m+ v- E# |, ]0 C2 }; {$ O* e4 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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