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Gas prices are rising while crude prices are falling. What gives?& O8 B$ {5 B7 l0 v* S$ _
Published: Friday, January 16, 2009 | 5:11 PM ET1 [6 g( r% |$ y: Q; O
Canadian Press NewsItem/NewsComponent/NewsLines/ByLine" X3 [) W& U3 ~/ x0 T8 z6 w
+ _: h; H+ v) H0 _# \0 hCALGARY - With crude oil prices falling, motorists may wonder why gasoline prices are heading in the other direction.
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1 R* ^" I! _. z9 c8 O" cThe 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.& }$ C" s) o- t- t8 K% o. F
$ B& \" F# f4 _6 m5 M- o& x: kCalgarians were paying on average 81.5 cents per litre - about a four-cent jump in just one day.
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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 $1.40-level gas many Canadian cities faced during the summer.: J+ r! T3 h& r' X, T' W! B# t
4 K/ k' ?& z4 i# K"I definitely changed my habits in the summer. I was going to go on two road trips, which I did not go on by virtue of the fact that the prices were so high," Lawnikanis said.6 N; y9 y9 |4 Y( d; u3 Y1 y4 X
3 n9 z% X( f% b$ ~+ j d% q"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.' I) B; G9 e1 I* a' ]4 |
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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.4 d# Z5 e' u( ?* Z
& F* f7 I" A' a3 X F9 i& 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.2 `& e& D( w- Q1 M+ w! f+ z
7 a# J( r; c4 v"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.5 z" K: n) E; ~( 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.
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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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; f; O' w0 x! G" J, bAnother 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& q% n5 [% h# |- A" F"(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.) c4 M" K, Q; V0 [! l7 o- b* ^) B
6 o# l( A, O* E' l u"I'm not seeing a lot of strengthening in crude oil prices over the next six months," he said.
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+ x/ ^6 E* a* _6 m"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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/ J# t8 I6 ~; A) c1 iBut 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.1 R" R' f# }, e8 f; e5 m
) A% Z3 j& [- J7 J0 |' q"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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! X; s' E4 j2 \* ~5 O"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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