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Gas prices are rising while crude prices are falling. What gives? P1 f- _. f! [4 [- H
Published: 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.
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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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Calgarians 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." l/ B4 b7 ]0 W) \
^5 F6 ^$ e; n: e6 EBut Friday's price is still a welcome respite from the $1.40-level gas many Canadian cities faced during the summer.$ J) v: {( j( X% _& o8 x
) o9 m: O+ z! \! F"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.' D9 r/ o9 @$ @6 d( r" x
8 k L" f6 a" R: N# K7 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."" a3 `& ?$ B& r! L5 \. E
0 R" d" \( e3 EIn Toronto Friday, pump prices were 80.9 cents per litre. On Thursday they were 79.4 and a week ago they were 74.2.6 T& x; M9 }/ h- s; E8 y
4 ]& D9 i, g3 [/ |3 F# m" SVancouver, 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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/ Y7 S# t1 p- L- U. ?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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The February contract for crude oil settled at US$36.51 on the New York Mercantile Exchange, down from more than US$50 a barrel a week ago.
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"Crude oil is an important input into the distillation of gasoline. But there's a lot of other factors as well," said Todd Hirsch, senior economist with ATB Financial in Calgary.
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% Y0 b% ~% N. ^. wIndustry players would say they have to account for transportation, marketing and other expenses - not to mention taxes, which vary from province to province.! E, W: F# s3 Q, _9 O% H
* T) O/ e/ }, x+ Y& j+ r8 ?+ |! j% xBut those oil companies - private-sector players in a free-market system - also want to turn a profit.* P- z: T) H) X4 g
) D1 W! P( b) M8 E8 E4 ]"Without question those gasoline prices are going to be the highest they think they can get away with without their competitor undercutting them," said Hirsch.4 j- A- q9 K7 l, \! N# ]
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"They're out to maximize their profits for their shareholders. I don't think there's anything evil going on in them trying to get the highest price. Every retailer in the country does this."# B" n/ z- b" v( W
# k, L$ @" z4 K8 D5 N% iAnother 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.; V! R0 e% h9 K5 q
7 d" S4 Y4 o8 V"(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.4 V3 C" I6 g' x4 L* ~; {9 Z6 _* D- c
9 ~1 F% x8 x. W L0 OHirsch 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.: A: ]7 r4 M# @, S
7 G- H1 f* c8 ]9 j"I'm not seeing a lot of strengthening in crude oil prices over the next six months," he said.; k S/ L* s) G8 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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" a0 J R9 G3 B1 JBut 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.; r, l: e# \: A) L0 w9 O
! |, m5 x4 v. j% {/ 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." @9 U) q% j' x7 J) Z
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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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