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Gas prices are rising while crude prices are falling. What gives?
$ C3 v- F: I) g+ O7 e# T3 [7 ^Published: Friday, January 16, 2009 | 5:11 PM ET
+ ~1 y/ a# {1 d! [- l$ aCanadian Press NewsItem/NewsComponent/NewsLines/ByLine
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6 p8 C. L v" o' v, I# R: GCALGARY - 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.8 S; c. r* ~: t6 F/ u% P
" v* k7 f; _: O( j4 V5 kCalgarians were paying on average 81.5 cents per litre - about a four-cent jump in just one day.
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. {" S: ^; _! V/ ~9 T3 V"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.0 [& n* x% j2 X. ~4 Z5 ]7 Y% q
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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."
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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 74.2.0 t" D) N5 P8 U: r5 k
7 R- J5 a! j' ?- RVancouver, 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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9 @4 p: a9 j! F4 p* v) ~( \. S: XThe price of crude oil, the main ingredient in gasoline, has been dropping steeply since it's peak of $147 reached in July.& ^8 _$ S. M7 S% |! I
! a) |% B& o$ `( T ]6 _% OThe February contract for crude oil settled at US$36.51 on the New York Mercantile Exchange, down from more than US$50 a barrel a week ago.
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"Crude oil is an important input into the distillation of gasoline. But there's a lot of other factors as well," said Todd Hirsch, senior economist with ATB Financial in Calgary.! H5 ]) P y/ E& } n3 j: m& z
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Industry players would say they have to account for transportation, marketing and other expenses - not to mention taxes, which vary from province to province.) t, a& j1 Y8 ]" z7 R
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But those oil companies - private-sector players in a free-market system - also want to turn a profit.
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0 `/ f# M9 [6 N# t0 \"Without question those gasoline prices are going to be the highest they think they can get away with without their competitor undercutting them," said Hirsch.
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"They're out to maximize their profits for their shareholders. I don't think there's anything evil going on in them trying to get the highest price. Every retailer in the country does this."& |/ r& i0 J% U7 E* Z
* S# L" S7 C8 Q5 q$ ~% d( b& `Another explanation could be that the February contract for crude oil expires on Tuesday, and the contract for March is already significantly higher, settling at $42.57 on Friday.
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6 o `! R D" i0 K& I) f7 D6 z"(The oil companies) might have realized that while prices were low in the last couple of weeks, they knew that there was going to be a correction," Hirsch said.
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T8 S- q' O/ H! t/ E0 g9 M1 ]Hirsch expects pump prices to bounce between 60 and 90 cents per litre over the next few months, but not retesting the heights of last summer.# G* Q: }4 S; e* z! P) `4 K
; k6 r: v2 `9 r: y" t"I'm not seeing a lot of strengthening in crude oil prices over the next six months," he said.
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"In the next six months I would expect to see gasoline prices more or less in the range they're in now, maybe firming up a little bit towards the spring and summer driving season as demand rises."$ ], ?. ]' b6 G) `# Y
* i3 _% s3 U/ l; v7 I( eBut 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.% A: t0 I/ ~' k- q d
4 ] l1 l1 |8 j+ b: I4 n"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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