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Gas prices are rising while crude prices are falling. What gives?
6 a3 o2 R, i! l. y8 ^% f+ RPublished: 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." J& x9 z/ }) T, s6 n+ F
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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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$ E( \6 f) G* i7 PCalgarians were paying on average 81.5 cents per litre - about a four-cent jump in just one day.
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2 |/ G! B! `5 f+ R, j; j; ~' t"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.7 ~7 z4 a$ M. _0 W4 E
8 x a' L: D2 A- iBut Friday's price is still a welcome respite from the $1.40-level gas many Canadian cities faced during the summer.
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; W1 F; Q8 W, l"I definitely changed my habits in the summer. I was going to go on two road trips, which I did not go on by virtue of the fact that the prices were so high," Lawnikanis said.% ~8 b3 T7 Z1 G/ I; J8 O: B) i
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"Because of the fact that the prices are so reasonable, I've actually taken the liberty to drive more. I've really enjoyed doing more driving.": X2 }% Q* k5 `0 t
E' K8 @, h5 fIn Toronto Friday, pump prices were 80.9 cents per litre. On Thursday they were 79.4 and a week ago they were 74.2.
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Vancouver, which has higher gas taxes than other cities, has prices of 94.7 per litre, up from 87.5 a week ago.! j$ B$ T4 t. \& u
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The price of crude oil, the main ingredient in gasoline, has been dropping steeply since it's peak of $147 reached in July.
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7 e/ J. q: z4 ?9 |$ AThe February contract for crude oil settled at US$36.51 on the New York Mercantile Exchange, down from more than US$50 a barrel a week ago.
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"Crude oil is an important input into the distillation of gasoline. But there's a lot of other factors as well," said Todd Hirsch, senior economist with ATB Financial in Calgary.+ J( ~5 u/ W. p2 t8 ?
" C) c% q6 Q0 d4 r: ZIndustry players would say they have to account for transportation, marketing and other expenses - not to mention taxes, which vary from province to province.! v# x8 y) c$ o5 H. U) m4 L& m
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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.
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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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7 E5 p: P1 B! l6 ?$ 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 $42.57 on Friday.) ]- X% B$ m, V6 f
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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.% v# Z" u+ b9 B% b) T
% G/ d6 B- [ x+ @+ x- JHirsch 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.+ ~1 D( X7 Y% u9 w9 |2 r
; t7 |# g4 N+ S' Q"I'm not seeing a lot of strengthening in crude oil prices over the next six months," he said.0 ~1 `+ L$ W: A$ N: {+ l' u
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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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" ]4 _- T8 P: ^/ A: K& G5 L. PBut 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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' I" s" l8 d$ k0 j"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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' j1 s% F' @( ]' Q"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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