CALL: 1-876-927-1779 | CARIBBEAN PETROLEUM UPDATE : JANUARY 2015
PAGE 1
CARIBBEAN Petroleum Update A Publication of the Caribbean Energy Information System (CEIS)
JANUARY 2015 ISSUE
REDUCTION IN CRUDE OIL PRICES: Impact on Caribbean Countries in 2014
T
he plummeting price of oil is still the most talked about energy news globally. Whilst the reduction in crude oil prices have had a positive impact on Caribbean nations, for oil producing countries like Russia and Venezuela, the reduction is wreaking havoc. But why does the price of oil keep falling? In this issue of the Petroleum Update we seek to highlight some of the factors that may have contributed to the drastic reduction in global crude oil prices. Over the last ten years, oil prices have been high fluctuating around US$100 per barrel. This is largely attributed to soaring oil consumption in countries like China and conflicts in key oil nations
like Iraq. Oil production in conventional fields couldn’t keep up with demand, so prices spiked. In June 2014, the price of Brent crude was up around US$112 per barrel, however by December 2014; it had fallen by more than half, down to approximately US$ 60 per barrel as shown in Chart 1 (see chart overleaf) Sometime in June-July 2014 the dynamics of oil consumption were rapidly changing with regards to shale gas production in the United States and the level of demand for oil in places like Europe and Asia. Similar to Russia, states such as Saudia Arabia and Iran that comprise the Organization of Petroleum Exporting Countries (OPEC) need higher oil prices to
To access CEIS website
balance their budgets. Therefore, many were expecting the world’s largest oil cartel to reduce production in order for prices to move back up. As a collection of oil-producing nations that pumps out about 40 percent of the world’s oil, the cartel can influence the price of oil by coordinating either to cut back or boost production. However, what came as a surprise was Saudia Arabia’s response to not cut oil production. Low prices are excellent news for oil consumers in places like Japan or the US, where gasoline was the cheapest it’s been in years. But there are enormous ramifications for nations reliant on oil sales. Russia’s economy is facing a potential meltdown. Ven-
continued on page 2/
1-876-927-1779 (Tel) 1-876-977-1840 (Fax) ceis@src-jamaica.org www.ceis-caribenergy.org
PAGE 2
CALL: 1-876-927-1779 | CARIBBEAN PETROLEUM UPDATE : JANUARY 2015
Reduc tion in Crude Oil Prices: Impac t on Caribbean Countries in 2014 continued from page 1/
ezuela is facing unrest and may default on its debt. Saudi Arabia, the world’s second-largest crude oil producer, was opposed to cutting production and seemed willing to let prices keep dropping. Why was that? In the 1980’s when prices fell Saudi Arabia tried to cut back on production and as a result lost market share, this may be the very reason why there is much reluctance to reduce production. In addition, the Saudis have indicated that they can live with lower prices in the short term. Whilst the Saudis can seemingly function with lower oil prices in the short term, the implications of lower crude oil prices is more toxic on countries in the Caribbean in the long run. One main consequence would be the adverse effect lower prices will have on the existing terms of the PetroCaribe arrangement. Member nations pay, with some variations, 40 per cent of the cost of the oil price upfront when it is above US$100 per barrel; 50 per cent when it falls within a range of US$100 to US$80 per barrel; 60 per cent at US$80 to US$50 per barrel; and full payment when the oil price falls below US$15 per barrel. The delayed portion is then transferred to
the PetroCaribe Development Fund as a long-term loan repayable at one per cent over 25 years, and the loan proceeds are used to fund development projects and provide budgetary support for the government. This means, if the scheme continues, PetroCaribe member nations may have to find more cash from already constrained budgets to meet the repayment terms as oil prices fall; increase their indebtedness; or agree to some other adjustment such as an increase in the interest rate. The consequence of this is that Caribbean indebtedness may build to even higher proportions of GDP. In addition, whilst Trinidad and Tobago is a major oil producer, falling crude oil prices will have deleterious implications for their economy. The importance of the energy sector in this country cannot be under emphasized as it accounts for an estimated 60% of government revenues. If the price of oil remains low or continues to fall below US$50 a barrel then there are a number of avenues through which one can expect the economy to be affected. The main possible implications will affect the fiscal position, trade, and foreign exchange channels. Through these channels a number of possible socio-
economic consequences can be faced which include the following: •
• • • • • • • • • • •
fall in government revenue due to the fact that their national budget is based on oil prices at US$80 a barrel , increasing government debt to finance a fall in revenue (assuming no change in expenditure), fall in GDP, fall in investment, forced adjustment in government expenditure (at some point), fall in exports, current account external balances come under pressure, fall in foreign exchange earnings and holdings if no measures are put in place, slowdown in business activity as business sentiment wane, pressure on the exchange rate, inability of the private and the public sector to maintain the wage bills, freeze on wage increases or a forced reduction in wages across the board and curtailment of capital expenditure.
On another note, even though the country is not a member of OPEC, it could hardly compete effectively and keep
CALL: 1-876-927-1779 | CARIBBEAN PETROLEUM UPDATE : JANUARY 2015 
market share if it pitches its oil price at a level higher than OPEC members. Lower oil prices are welcomed for countries that import oil and bad for countries that export. In a case like Jamaica and other developing/emerging market oil-importing economies, the fall in oil prices will result in a decline in overall prices. Lower crude oil prices signify a fall in import prices and a decline in the price of energy, which is a necessary input in most production processes. The fall will also be reflected in falling gas and electricity prices. For Jamaica, given the current account goals the country wants to achieve, lower oil prices will represent a fall in overall import bill. The current account deficit to gross domestic product (GDP) ratio for Jamaica is an estimated 8%. Whilst the trade deficit is improving marginally, this is largely attributed to the fact that the decrease in imports is greater than the decrease in exports, not because of an increase in production. Therefore, plummeting crude oil prices will mean lower production costs, thereby allowing for increased production will ultimately impact GDP positively. Lower crude oil prices mean a lower cost of production, and lower prices of goods and services that depend on oil to be produced. For Caribbean countries, it means less costly
PAGE 3
electricity, water and transportation, and households should have more of their disposable incomes to spend on other products. A higher disposable income means increase in aggregate demand, which should be offset by an increase in production, thereby increasing GDP. However, for some countries like Trinidad and Tobago, Europe and Asia, lower crude oil prices can have serious consequences for economic activity. In the case of Trinidad and Tobago, the present fall in oil prices provides an opportunity for Trinidad and Tobago to decrease energy subsidies and use the savings toward more targeted transfer and to revise energy taxes. For those Caribbean countries that are benefiting from the fall in oil prices it is really in the interest of governments, the consumer, and the private sector that the benefits of today’s lower prices be distributed quickly. What is important here is the rate of passthrough from the decrease in crude oil prices to consumer and retailer prices. If pass-through is high, consumers will benefit a great deal, and it will contribute more to GDP growth. However, if pass-through is low, consumers will not receive much of the benefit from the fall in global oil prices and the economy will grow less. Lower oil prices for every sector of the economy will help to stimulate and spread economic activity that is crucially important.
Image source courtesy of http://www.adaderana.lk/
PAGE 4
CALL: 1-876-927-1779 | CARIBBEAN PETROLEUM UPDATE : JANUARY 2015
PETROLEUM NEWS & HAPPENINGS Use Oil Savings To Kick-Start Growth, Says JCC [...]... Read more Canadian banks say Caribbean operations stand to benefit from cheaper oil [...]...Read more No Change in OPEC Policy Amid Oil Slide – UAE Energy Minister [...]...Read more Utility’s call for tenders to replace energy contracts coming ‘soon’ [...]...Read more
Caribbean Energy
US Gov’t Predicts Shale Slowdown As Oil Falls [...]... Read more
Petrobras reports lower earnings, unable to quantify ‘Car Wash’ hit [...]... Read more
Gas prices down $3.03, diesel down $3.56 [...]... Read more
Gas prices up 61 cents, diesel up 73 cents [...]... Read more
Plunge in oil paces 30-year low 1.58% inflation, Central Bank [...]...Read more
Trinidad and Tobago Prime Minister Proposes Energy Fund to CARICOM [...]...Read more
Vin Lawrence Recommends Oil Hedges to offset eventual Price Rise – Cheap Oil will not change Energy Policy [...]...Read more
Oil market upheaval looms over Saudi succession [...]...Read more
Antigua Gov’t to Acquire Full Control of Energy Company [...]...Read more
Petrojam Cites Inventory Losses as Oil Prices Fall – Marketing Companies turn to State Refinery for Supplies [...]...Read more
Light Bills to Go Down Nine Per Cent this Month [...]... Read more
Oil! Oil! Oil! Embrace the Opportunity [...]... Read more
Most developing countries will benefit from oil price slump, says World Bank [...]...Read more
Fuel prices fall a 9th straight week, Natural Gas unchanged [...]...Read more
LIAT to Cut Fuel Surcharge by Half [...]...Read more
Saudi Arabia oil: What next? [...]...Read more
Gas prices down $1.00, diesel unchanged [...]... Read more
Outage of biggest power plant to affect energy to east region [...]...Read more
Financial shocker of the year: Oil at US$60 [...]... Read more
Barbados Tries Alternatives Amid Natural Gas Shortage [...]...Read more YPF to study Chaco hydrocarbon potential [...]... Read more
CALL: 1-876-927-1779 | CARIBBEAN PETROLEUM UPDATE : JANUARY 2015
Map of proven global reserves of conventional oil, where new actors have also reduced OPEC’s grip. Credit: Fastcompany.com
Image Source: www.wetrade4you.com
PAGE 5
PAGE 6
CALL: 1-876-927-1779 | CARIBBEAN PETROLEUM UPDATE : JANUARY 2015
Prices at the Pump
JANUARY 2015
The fourteen Caribbean countries reviewed at the end of January 2015 experienced an overall decrease in retail prices for Regular Unleaded Gasoline. The highest price decreases were seen in Suriname, St.Vincent and the Grenadines and Guyana of 45%, 26% and 17% respectively. The average retail price at the end of January 2015 was 13% lower when compared to the previous month. The general decrease in prices is attributed to the downward trend in crude oil prices. Unleaded Gasoline: Regular : Average Retail Price: Dec. 2014 - Jan. 2015 (US$/Litre) 2014 COUNTRIES
DEC
JAN
2 MTHS AVG
ANTIGUA/ BARBUDA
1.23 1.25 1.71 1.26 1.07 1.09 1.12 1.06 1.12 0.98 1.31 1.14 1.17 0.42
1.11 1.13 1.53 1.12 0.92 0.97 0.93 0.96 1.04 0.96 1.21 0.85 0.65 0.42
1.17 1.19 1.62 1.19 0.99 1.03 1.03 1.01 1.08 0.97 1.26 1.00 0.91 0.42
BAHAMAS [91 OCT] BARBADOS BELIZE [87 OCT] DOMINICA GRENADA (95 OCT) GUYANA JAMAICA 87 Octane[E10] MONTSERRAT ST. KITTS/ NEVIS ST. LUCIA ST. VINCENT/ GRENADINES SURINAME [95 OCT] TRINIDAD/ TOBAGO [92 OCT]
NOTE: *US Gallon = 3.785 L *Imperial Gallon = 4.546 L *As at November 1, 2009 MTBE was phased out from all gasoline blends in Jamaica and replaced with 10% Ethanol.
US$/Litre
1.80
Comparative Retail Pump Prices Regular Unleaded Gasoline JANUARY 2015 2 Mths Avg (Dec-14 ̶ Jan-15)
1.60
JAN
1.40
2 Mths AVG
1.20 1.00 0.80 0.60 0.40 0.20 0.00
14 Caribbean Countries
See prices for all products at www.cippet.org
International OIL PRICES
CALL: 1-876-927-1779 | CARIBBEAN PETROLEUM UPDATE : JANUARY 2015
90 80 70
US$/BBL
PAGE 8
Average Weekly & Monthly Crude Oil Prices (Nov-14 - January 2015) 78.24 67.18
60 50 40
53.44
30 20
Nov-14
10
Dec-14
Jan-15
0
WK1
WK3 Period
WK4 MTH AVG
Average Monthly World Crude Oil Prices (2012 - 2014) 110.0
US$/BBL
International Crude Oil Prices continue to trend downwards with an average price of US$48.94/bbl for the period November 2014 to January 2015. This shows a 35.3% decrease in prices when compared to November 2014 and a 18.4% decrease in average prices when compared to December 2014. The highest weekly price seen in January 2015 for the commodity was US$53.44/bbl-reflected in week one while week four accounted for the lowest price of US$46.46/bbl. Crude oil prices continued on a downward trend as global supply continued to outweigh demand.
WK2
106.6
106.6
105.8
90.0
70.0
2012
2013
2014
50.0
Period
FEATURED OFFERS: P E TS TATS - t h e Ca r i b b e a n E n e rg y I n fo r m at i o n System (CEIS) primary report of historical annual petroleum energy statistics provided for 18 Caribbean Countries. Included are data on total energy production, consumption, and trade; overviews of petroleum, natural gas, electricity, as well as financial and environmental indicators for over twenty years.
Scientific Research Council, Hope Gardens, Kingston 6, Jamaica 1-876-927-1779 (Telephone) 1-876-977-1840 (Fax)
Subscriptions - If you wish to subscribe (free of charge) or cancel your subscription to the CARIBBEAN PETROLEUM UPDATE, send us an email at: ceis@src-jamaica.org See CEIS FOR MORE: www.ceis-caribenergy.org Join us through CIPORE on Facebook, Twitter, LinkedIn and Subscribe to our RSS Feed