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Gas prices are rising while crude prices are falling. What gives?
: r2 B0 m( h2 @) f& MPublished: Friday, January 16, 2009 | 5:11 PM ET
) u1 i2 F4 o9 g' a: h& |Canadian Press NewsItem/NewsComponent/NewsLines/ByLine* j) v9 E, \$ n6 \ d8 P5 j4 v/ T
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CALGARY - With crude oil prices falling, motorists may wonder why gasoline prices are heading in the other direction.8 E0 k6 J x1 t* d: R
& T# O1 I6 p# f0 j* s0 V2 `) wThe 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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- ^3 T# j) g4 ]/ r( s& p"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.- o& w8 D% e7 M8 [. g1 {7 e% a
0 I Y3 y' @/ EBut Friday's price is still a welcome respite from the $1.40-level gas many Canadian cities faced during the summer.- w* l9 e- W7 M7 {! |
1 E1 g2 Y7 Q7 t' D/ y) w+ t"I definitely changed my habits in the summer. I was going to go on two road trips, which I did not go on by virtue of the fact that the prices were so high," Lawnikanis said.- W" A5 [ {" c w% b7 Q' M1 [% G
& J, Z1 C' ?# g# {% u; @0 m"Because of the fact that the prices are so reasonable, I've actually taken the liberty to drive more. I've really enjoyed doing more driving."( N- ^* K% k* W/ x" j. x) ]
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In Toronto Friday, pump prices were 80.9 cents per litre. On Thursday they were 79.4 and a week ago they were 74.2.9 c- `( O- K8 w. c! a+ d
; q# q( q0 v1 O% Y2 U8 r5 TVancouver, which has higher gas taxes than other cities, has prices of 94.7 per litre, up from 87.5 a week ago.# z/ I, g4 b3 e$ }
1 |! U5 a8 H5 ~: @: yThe 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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" N! B% c# G# ~# B! X* V0 a6 ?8 X5 PThe February contract for crude oil settled at US$36.51 on the New York Mercantile Exchange, down from more than US$50 a barrel a week ago. A1 M! l- k) d. V( X7 k
5 d7 q' L" L1 ^. [6 A' \! A4 O8 e4 U"Crude oil is an important input into the distillation of gasoline. But there's a lot of other factors as well," said Todd Hirsch, senior economist with ATB Financial in Calgary.& S `5 I' c+ x9 h E
9 i1 D( A3 U' m8 RIndustry players would say they have to account for transportation, marketing and other expenses - not to mention taxes, which vary from province to province.
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" C2 `$ a i cBut those oil companies - private-sector players in a free-market system - also want to turn a profit.0 W: B* K6 K3 ^8 y; f/ }+ k6 W
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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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+ s: q- @# c7 N: @$ K4 p+ S" z* D"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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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 $42.57 on Friday.% w0 B: `9 J$ i1 P( j. X
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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.
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5 m! d3 r4 k9 p$ uHirsch 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., s& U1 I9 Q3 K
/ l2 }' s2 A% A"I'm not seeing a lot of strengthening in crude oil prices over the next six months," he said.
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p/ d4 }/ q# N"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."- |8 p, Q$ E0 H$ s: }
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But 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.- Y8 Q! F" Y) v" s
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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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4 Q0 k8 d, G" M8 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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