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Gas prices are rising while crude prices are falling. What gives?' B+ R S$ F+ Q
Published: Friday, January 16, 2009 | 5:11 PM ET
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) h( n' z- J J9 l! {CALGARY - With crude oil prices falling, motorists may wonder why gasoline prices are heading in the other direction.+ L$ D* E( U$ F' W1 J W: ^1 R
- |! @& ^( W# t( N) @; iThe 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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( j5 t' K+ a' v* r* E"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 $1.40-level gas many Canadian cities faced during the summer.; T' e; `* Q0 Q% {; x1 o/ ~
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"I definitely changed my habits in the summer. I was going to go on two road trips, which I did not go on by virtue of the fact that the prices were so high," Lawnikanis said.
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"Because of the fact that the prices are so reasonable, I've actually taken the liberty to drive more. I've really enjoyed doing more driving."9 F3 |9 }2 ^+ H0 K
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In Toronto Friday, pump prices were 80.9 cents per litre. On Thursday they were 79.4 and a week ago they were 74.2.
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" t& m2 {7 c* o* y& U! u. `Vancouver, which has higher gas taxes than other cities, has prices of 94.7 per litre, up from 87.5 a week ago.1 y8 L$ m* R2 Q7 D: Y0 l2 }
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The price of crude oil, the main ingredient in gasoline, has been dropping steeply since it's peak of $147 reached in July.$ i1 y$ x v( j: e0 @
* u2 N' k% n1 z0 |) k/ P+ WThe February contract for crude oil settled at US$36.51 on the New York Mercantile Exchange, down from more than US$50 a barrel a week ago.
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"Crude oil is an important input into the distillation of gasoline. But there's a lot of other factors as well," said Todd Hirsch, senior economist with ATB Financial in Calgary.
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Industry players would say they have to account for transportation, marketing and other expenses - not to mention taxes, which vary from province to province.
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But those oil companies - private-sector players in a free-market system - also want to turn a profit.
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" W% X1 w) F1 Y0 T$ h"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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3 T$ Y" K' H2 D3 D* H" H4 C"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."8 T+ Y7 g( {/ r
. ]" o; p( V; i0 JAnother explanation could be that the February contract for crude oil expires on Tuesday, and the contract for March is already significantly higher, settling at $42.57 on Friday.) X+ W3 k3 S: R- D: l, F, Z( ]
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"(The oil companies) might have realized that while prices were low in the last couple of weeks, they knew that there was going to be a correction," Hirsch said.6 F/ {- f H/ ?
3 a0 i7 ^) S$ c V' b3 l6 tHirsch 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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0 ^6 i- t$ F( t0 W; z"I'm not seeing a lot of strengthening in crude oil prices over the next six months," he said.# y* E% e% d% }: B
/ t( Q% I; G: O: O"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."2 |$ w, ^- \$ ^, J8 l7 u- }
1 z' Z3 @6 J% P3 u1 L. tBut 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.- Y& i3 {' ]6 X- @1 c- r" I0 ?
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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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"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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