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CARIBBEAN ENERGY INFORMATION SYSTEM (CEIS) AUGUST 2013 ISSUE

In this issue of the Caribbean Petroleum update, we seek to explore the importance of Syria in the global oil distribution network and factors that could impact oil prices in light of its recent unrest.

The crude oil market, more specifically the price of crude oil is sensitive to Middle Eastern conflicts. With the current crisis in the Middle East it is no wonder the market is showing concerns. Two years ago with the unrest in Libya, prices rose to US$115 per barrel and with mention of Iran nuclear program prices rose to US$110 per barrel. The average price for WTI crude oil for August 2013 was US$106.97 a 1.2% increase from the previous month. The To access Middle East region CEIS website accounts for a signifi-

CARIBBEAN PETROLEUM UPDATE

Image source courtesy of http://www.thisismoney.co.uk/money/

cant portion of world crude production. Countries such as Iran and Iraq together hold almost a fifth of the output capacity of the Organization of Petroleum Exporting Countries, according to Bloomberg estimates. There is great concern that continued on page 2/ CONTACT US

Caribbean Energy Information System Scientific Research Council Hope Gardens, Kingston 6, Jamaica 1-876-927-1779 (Telephone) 1-876-977-1840 (Fax) ceis@src-jamaica.org www.ceis-caribenergy.org

is a monthly Bulletin which highlights petroleum issues affecting or relevant to the Caribbean, international developments that may affect the region’s way of life and movements in oil prices and retail prices for fuel regionally.


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Call: 1-876-927-1779 | Caribbean Petroleum Update : August 2013

Syria’s Conflict! Factors Impacting Oil Prices!..........................................…….. continued from page 1

the conflicts in Syria could spread into other Middle Eastern provinces and threaten oil supplies which would further exacerbate the price of oil in the market. Although much of the country’s exports have been severely restricted and civil conflicts have crippled its energy infrastructure, Syria’s position in the global oil network is nonetheless important. There has been much speculation that the conflicts in Syria have contributed to the increase in oil prices and this trend will continue if the unrest perpetuates. Syria is located on the southwest of the Asian continent, north of the Arabian Peninsula in the Middle East and bordered by Turkey on the north, Lebanon and Israel on the West, Iraq on the east and Jourdan on the south. The proximity to nations like Israel and Iraq has contributed to making Syria an important global nation. Also, a striking feature of the life in Syria and most Middle Eastern countries is marked mainly by the distribution of its religious groups. With its religious culture usually tied to its political unrest, any tensions in Syria can spill over into neighbouring oil producing countries like Iraq and can have a negative impact on oil supplies. In C

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addition, with such close proximity to global oil pipelines, Syria’s location could be a cause for concern as any disruptions to pipelines can have negative repercussions for many countries. Both factors are intertwined as both can significantly impact global oil supplies. While Syria plays little role in the production of oil, historically, there has been some connection between conflicts and the rise in oil prices. However, the extent to which Syria impacts the price of oil is dependent on two factors; firstly is its close proximity to crucial pipelines and sea routes used for the distribution of oil and secondly, its political unrest that is tied close to their religious culture which gives rise to speculative demand of oil. Firstly, let us take a closer examination of the proximity of Syria to vital pipelines and oil distribution network. Iraq’s natural gas flows through the Turkish port of Ceyhan, just hours away from the Syrian border. To the southwest is the Suez Canal, which connects the Red Sea and the Gulf of the Suez with the Mediterranean Sea. The canal transports about 800,000 barrels of crude and 1.4 million barrels of petroleum products daily, according to the U.S. Energy Information Administration (EIA).

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Caribbean Petroleum Update : August 2013 | Call: 1-876-927-1779

Another regional oil shipping route potentially threatened by the Syria crisis is the Sumed, or Suez-Mediterranean, pipeline, also in Egypt, which transports oil from the Persian Gulf region to the Mediterranean. The Sumed handles 1.7 million barrels of crude oil per day, according to the EIA. Additional, to the north of Syria is Turkey (see map below), which has the Kirkuk-Ceyhan pipeline that carries a large supply of Iraqi oil to the Mediterranean, and the BakuTblisi-Ceyhan pipeline which transports oil from Central Asia. Also, to the east of Syria are the oil fields of northern Iraq, a country that produced 3 million barrels of crude a day in 2012. Any disruption in the oil flows through any of these distribution channels could definitely have negative repercussions on global oil supply. In the past oil prices have risen when those pipelines were sabotaged. One example of tensions affecting oil supply was in the case of Libya where protests led to the closure of strategic oil terminals which contributed to a rise in oil prices globally. Any uncertainty surrounding the availability of oil inversely impacts the price of oil; this simply means that if there is a shortage in the supply of oil, the price of the commodity will increase. With Syria and most Middle Eastern countries usually ex-

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periencing some level of conflict whether political or religious, there is another factor that must be considered in light of this. This is oil inventory demand. The uncertainty about oil supply in the future may arise because of political or religious tensions in these countries. Such doubts increase the need to store oil that will then drive up the current price of oil. On another note, many times during tensions and conflicts, speculative demand plays a major role in price hikes. In the case of Syria, there has been much speculation in light of a U.S. intervention. Speculation in financial markets is engaging in financial transactions with the anticipation of profiting by selling the instrument or commodity at a higher price at a later date. For example, when traders buy a large number of contracts for oil to be delivered at a later date, these are referred to as future contracts. In the case of Syria, the fear of disruption to major pipelines transporting oil due to a possible U.S. intervention in Syria could be fuelling speculative activities. This in turn increases the price of future oil deliveries. Knowing this, oil producers would withhold their oil supply which then push up the price of oil.

Any disruption in the oil flows through any of these distribution channels could definitely have negative repercussions on global oil supply Image source: gloalresearch.ca

Image source:bloomberg.com continued on page 4/

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Call: 1-876-927-1779 | Caribbean Petroleum Update : August 2013

Syria’s Conflict! Factors Impacting Oil Prices!..........................................…….. continued from page 3 With the expectation that future oil prices will be high, the demand for future contracts increases, the price for these contracts also increases and this in turn moves up the current price of oil. Whilst the conflicts are concentrated in the Middle East the effects in oil prices has far reaching implications for Caribbean nations. Their heavy dependence on foreign oil makes them susceptible to external shocks like rising oil prices. It is important to note that most of the oil imported by Caribbean nations is used mainly to fuel the electricity and transportation sectors. In any case, rise in global oil prices will result in an increase in the energy bill and a negative impact on the trade balances. Additionally, the high and rising cost of energy adversely affects the manufacturing and service industries and as such makes the exports of Caribbean companies uncompetitive globally. In addition, to offset the cost for a rise in fuel prices, increases will be transferred to the consumers in electricity rates and retail pump prices in Caribbean countries.

oil exports would be as a consequence of damage to its pipelines which are in close proximity to Syria. Additionally, Sunni-Shite tensions could spill over into neighbouring countries that would only exacerbate the situation and ultimately oil prices. Syria’s proximity to these major oil producing countries can be looked at as a strategic position, however, in light of a possible U.S. intervention in Syria, neighbouring countries like Iraq and Iran would be concerned about disruptions to their oil distribution network. In the case of the Caribbean, any rise in oil prices will increase the cost incurred by the respective governments for importation of oil to fuel their economies. More importantly, it will negatively affect the price of electricity rates and transportation, in addition to impacting oil importation arrangements such as the PetroCaribe. With such uncertainty in the market, it is envisaged that the price of oil will continue to rise until some stability is restored in Syria.

Furthermore, any rise in the price of oil will not only increase the amount of foreign exchange needed but will also impact the PetroCaribe agreement signed by several Caribbean countries and other agreements made for the importation of oil. With the PetroCaribe agreement predicated on the price of oil, any rise in price will impact how much is paid up-front and interest rate applied. Conclusion There are a number of factors that can impact the price of oil inversely, among these include:   

Disruptions in oil supply which can lead to a shortage of the commodity, Oil inventory demand which is as a result of uncertainties in future oil supply and Speculative demand.

With the recent conflicts in Syria, there is much concern surrounding the factors stated above. Any impact on Iraqi

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Image source: http://aworldchaos.wordpress.com/

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PETROLEUM NEWS & HAPPENINGS Royalty rates reduced for Leni Gas & Oil [...]...Read more T&T opens new deepwater round bids, Ramnarine calls for industry new terms [...]...Read more OUR puts brakes on Power Wheeling [...]...Read more Trinidad & Tobago now taking bids on 6 deep water blocks [...]...Read more Trinidad, Guatemala Talk Energy [...]...Read more Guatemala interested in TT’s gas [...]...Read more JPS took OUR to court over “Unlawful and Irrational” Regulations [...]...Read more

Trinidad multibillion dollar energy plant at risk [...]....read more

Gas prices increase $1.80, diesel up $2.13 [...]...Read more Deepwater lease round in progress for Trinidad and Tobago [...]...Read more

Trinidad multibillion dollar energy plant at risk [...]… Read more

ConocoPhillips announces sale of Trinidad and Tobago gas processing assets [...]...Read more

Oil price used for Trinidad & Tobago budget nears twoyear highs [...]...Read more

Azurest Talks Up Bid For 360-Megawatt Plant [...]… Read more

Centrica Energy has paid tribute to the life of one of its pioneering exploration engineers who first discovered gas in Morecambe Bay [...]...Read more

…Ramnarine calls for energy investment boost [...]… Read more Oil and Gas Industry Braced as Hurricane Season Nears Peak [...]...Read more

‘Energy companies must help areas in which they operate’ [...]...Read more

Trinidad and Tobago seeks offshore bids [...]...Read more

Energy Ministry Says SATIIM Is Mistaken [...]… Read more

Brazil Congress backs oil royalties bill [...]...Read more Bradley Roberts: PLP supports Energy Sector Reform [...]...Read more

Big oil’s big lies about Alternative Energy [...]...Read more Oil climbs above US$109 [...]...Read more

BCCEC: Energy Costs ‘A Critical Situation’ For Some Firms [...]...Read more

Maduro says oil refinery explosion was sabotage [...]...Read more

Trinidad Government, BP Optimistic Over Latest Seismic Results [...]...Read more

Jamaica Public Service Foundation Receives International Donor Support [...]...Read more

Mexico’s latest Energy Revolution [...]...Read more

Diesel comeback: Model tally set to double for 2014 [...]...Read more

Energy Chamber’s Budget recommendation – Phase out diesel, gas subsidy [...]...Read more

Jamaica Public Service Foundation Launched [...]… Read more

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Call: 1-876-927-1779 | Caribbean Petroleum Update : August 2013

REGULAR UNLEADED GASOLINE AVERAGE PRICES AT THE PUMP AUGUST 2013 Retail prices for Regular Unleaded Gasoline in the eleven Caribbean countries reviewed at the end of August 2013 showed marginal increases in prices for Bahamas, Belize and Jamaica with Belize experiencing the highest increase of 4.2% from July to August 2013. Prices in Antigua and Barbuda, Barbados, Dominica, Grenada, Saint Lucia and Trinidad and Tobago remained stable. However, there were minimal decreases in prices in August 2013 in St. Kitts and Nevis and St. Vincent and the Grenadines between 1% and 2% respectively

Regular Unleaded Gasoline: Average Retail Price (US$/Litre) 2013 COUNTRIES

JAN 1.23 1.37 1.58 1.33 DOMINICA 1.18 GRENADA (95 OCT) 1.29 JAMAICA 87 Octane[E10] 1.25 ST. KITTS/ NEVIS 1.35 ST. LUCIA 1.26 ST. VINCENT/ GRENADINES 1.22 TRINIDAD/ TOBAGO [92 OCT] 0.42 ANTIGUA/ BARBUDA BAHAMAS [91 OCT] BARBADOS BELIZE [87 OCT]

FEB 1.23 1.41 1.58 1.33 1.20 1.29 1.28 1.33 1.26 1.22 0.42

MAR 1.23 1.52 1.58 1.54 1.28 1.35 1.26 1.35 1.28 1.12 0.42

APR 1.23 1.50 1.58 1.54 1.28 1.35 1.24 1.22 1.30 1.15 0.42

MAY 1.23 1.43 1.71 1.53 1.28 1.33 1.25 1.17 1.32 1.17 0.42

JUN 1.23 1.43 1.63 1.54 1.28 1.31 1.25 1.24 1.32 1.17 0.42

JUL 1.23 1.42 1.64 1.53 1.28 1.32 1.26 1.21 1.31 1.17 0.42

AUG 1.23 1.44 1.64 1.60 1.28 1.32 1.27 1.20 1.31 1.14 0.42

AVG 1.23 1.44 1.62 1.49 1.25 1.32 1.26 1.26 1.29 1.17 0.42

Comparative Retail Pump Prices Regular Unleaded Gasoline AUGUST Avg vs 8 Mths Avg (Jan - August 2013)

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1.60 1.40 1.20 1.00 0.80 0.60 0.40 0.20 0.00

11 Caribbean Countries

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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.


Caribbean Petroleum Update : August 2013 | Call: 1-876-927-1779

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PETROLEUM NEWS & HAPPENINGS continued from page 5 Crude prices up for third straight day [...]...Read more Venezuela makes repeated attempts to collect rocaribe debts from Dominica [...]...Read more

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Power Plant Plan In 75% Fuel Charge Cut [...]...Read more

Peak Oil Review – August 12 [...]...Read more Jamaica opens supply call bids [...]...Read more Power Trinity – Companies Collaborate To Offer Best Bid In The Megawatt Project [...]...Read more ca-

Crowley Video Explains LNG Benefits to Caribbean Industry [...]...Read more PetroCaribe surprise [...]...Read more Petroleum prices to rise [...]...Read more

360-megawatt project: Deadline for entities to submit bids [...]...Read more No Interest Rate Hike on PetroCaribe Loans says ister Paulwell [...]...Read more

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Bahamas Petroleum Company PLC : Interim Results [...]...Read more Report: Venezuela To Raise Interest Rates On roCaribe Oil [...]...Read more

JPS Wins Award for Best Safety Performance in the Region! [...]...Read more

Lighting The Low-Cost Way [...]...Read more Trinidad and Tobago ready to partner with Uganda oil and gas [...]...Read more

Image source: https://www.google.com.jm/

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Uganda: Trinidad & Tobago Interested in Uganda’s Oil Sector [...]...Read more

Paulwell: No PetroCaribe interest rate hike expected [...]...Read more

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Back to Square One – Petrocaribe Interest-Rate Increase Forces Jamaica to Rethink its Debt Solution [...]...Read more

Mexico opens oil sector to private sector investment [...]...Read more

JPS partners with local bidders for new generating pacity [...]...Read more

OUR opens proposals for new generating capacity morrow [...]...Read more

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Call: 1-876-927-1779 | Caribbean Petroleum Update : August 2013

Analysis of the International Crude Oil prices over the three months period June – August 2013 saw prices in August averaging over US$100 per barrel at US $105.79/BBL. When compared to the average prices seen in June and July this average price was approximately 10.5% and 1.2% higher respectively. The highest weekly price seen in August for the product was US$106.97/BBL – reflected in week three while the lowest price recorded was US$105.17 seen in week two. An average of the three month’s average prices reflected US$100.15/ BBL. The increase in crude oil prices in August 2013 is attributed to the ongoing conflict in Syria and uncertainty surrounding global oil supplies.

Average Monthly World Crude Oil Prices (2010 - 2012) 109.61

106.0

110

US$/BBL

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100

88.14

90 80 70

2010

2011

2012

60

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Caribbean Energy Information 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.

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Ceis petroleum update aug2013