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CARIBBEAN ENERGY INFORMATION SYSTEM (CEIS) OCTOBER 2013 ISSUE

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n the production and manufacturing environment, any pricing mechanism will take into consideration the various costs associated with production. Most importantly, it will seek to account for the costs of the input of raw materials used to produce the desired output. Typically, the cost of production accounts for a large portion of the overall costs and therefore will be reflected in the final price of the commodity. Notwithstanding this, there are other factors that are taken into consideration when the final price of a product is being determined. These factors may include but are not limited to market forces (supply and demand), distribution costs, taxes, competition and profit margins. Similarly, the retail price of refined products such as gasoline will be heavily influenced by its raw material, crude oil. However, in light of the effects of exogenous factors, the price of crude oil (by itself) may not directly impact the retail prices of refined products. This issue of the Petroleum Update will seek to explore the extent to which crude oil impacts the retail price of gasoline, a byproduct of crude oil. To access CEIS website CARIBBEAN PETROLEUM UPDATE

Crude oil in its raw state is known as Petroleum. It is unprocessed oil found beneath the earth’s surface which is then processed by oil refineries to produce refined products such as gasoline and diesel among others. Since crude oil is the primary component used in the production of gasoline, its price on the global market is important in determining the regional retail prices of petroleum products. However, the prices of petroleum products vary across different markets and in different countries and as such other factors other than the price of crude oil also have a significant impact on the price consumers pay at the pump. These factors include supply and demand, travel and distribution costs (freight, insurance), the costs of storage and handling and subsidies among other fees (taxies and levies etc.) Another important note is that the price of international crude oil is a general indication of market prices rather than the price of a specific 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 : October 2013

Relationship between Crude Oil Prices & Retail Prices of Petroleum Products‌.continued from page 1 Figure 1 Caribbean Energy Information System AVG Crude Oil Prices (WTI) for Last 5 years 120

99.57

94.87

100

US$/ Bbls

crude type. This is because several types and grade of crude oil are available on the international market. When determining the ex-refinery price of oil, a base price is used. This base price is determined by the conditions existing in the market place, if there is a shortage and increased demand, usually prices rise, however, if there is a surplus the opposite is usually seen. Therefore, while the price at which crude oil is traded on the global market tends to be similar, the pricing mechanism applied varies in different regions and as such the effects of any changes in crude oil prices worldwide (whether downward or upward pressure) will not directly determine the retail prices charged for refined petroleum products such as gasoline on a regional basis. In otherwords,even if there is a decrease in international crude oil prices one cannot decisively state that there will be an automatic decrease in the retail prices, while situations may occur where this trend is evident, other factors are taken into consideration when retail prices are determined.

79.40

94.11

80 60

61.65 40 20 0

2008

2009

2010

2011

2012

Figure 2 Caribbean Energy Information System Retail Prices of Unleaded Gasoline - last 5 years (for Antigua & Barbuda/Bahamas/Barbados/Jamaica) 2

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1.6

Prices (US$/Litre)

On the other hand, in recent years the price of crude oil has risen, this is attributed to increased global demand and geopolitical tensions in oil producing nations. These are two factors that impact the price of crude oil on the global market. Using the last 5 years of crude oil data as shown in Figure 1, there is a steady increase in crude oil prices from 2009-2012. Likewise, a similar trend in reflected in the retail prices for the four Caribbean countries as shown in Figure 2. The trend is suggesting a positive relationship between crude oil prices and retail prices. Whilst, the data suggests this correlation between crude oil and retail prices regionally, it is important to understand that domestic price movements are not necessarily synonymous with international movements in crude oil prices. In addition, one should always bear in mind that correlation does not mean an automatic causation, but simply points to a significant influence. For example, as illustrated in Graphs 1 and 2 above, there was a minimal decrease in crude oil prices in 2012 of 0.8%, however, there is a minimal increase in retail prices for the selected countries between 2% and 8%. What does this indicate?

1.2 0.8 0.4 ANTIGUA & BARBUDA

BAHAMAS

BARBADOS

JAMAICA

2010

2011

2012

0 2008

2009

Years

This is an indication that there are other factors that come into play when retail prices are being determined in the respective countries. One factor may be attributed to the pricing mechanism used in each country and the extent of government subsidies in cushioning the changes in oil prices. In the case of Jamaica, the marketing and distribution companies purchase derived products at the refinery billing price (includes the US Gulf Reference Price as a base plus charges for freight and insurance and govern-

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

ment taxes) after which a retailers margin is added. Since Jamaica has a deregulated market structure, the retailers of gasoline are able to set their own margins and as such the price varies by location in the country. Since the commodity may have to be transported to different parts of the country, a recovery cost for transportation is factored into the final price charged to consumers. Additionally, the profit margins applied by retailers of the product is to recoup the costs associated in providing the product and so in some instances consumers experience an increase in retail prices even if there is a decrease in crude oil prices. Therefore crude oil prices will indirectly impact the retail price if it impacts the US Gulf Reference Price since this is the base price used to determine the cost to the marketing companies. Additionally, for countries without refineries where marketing and distribution companies import and distribute refined products in the domestic market, it is reasonable to assume that the retail price charged to consumers would be significantly higher as the cost to import the product is taken into consideration and profit margins and markups tend to be higher. Furthermore, even when crude oil prices show some level of stability, the fact that retailers operate in a deregulated environment, prices can swing either way.

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arrived at through demand and supply in both the physical markets and the futures market. Other than these two factors, geopolitical tensions, exchange rates fluctuations, inventory demand among others can impact the price at which it is sold globally. Therefore, while the price at which crude oil is traded on the global market tends to be similar despite the differentials in type and quality (light-weight, low-sulfur (lightsweet) grades and heavier, higher-sulfur (heavy-sour) crudes that are lower in quality), the pricing mechanism used for determining retail prices varies in different regions and as such retail prices vary. These pricing structures takes into consideration additional factors that weigh heavily also on the retail price of the commodity. This suggests that, whilst a change in retail prices maybe influenced by a corresponding change in crude oil prices, with exogenous factors taken into consideration, retail prices will not necessarily reflect the same marginal change in crude oil prices. 

In some Caribbean countries (smaller nations), the retail price of refined products are regulated by the government and most times is subsidized. Conclusion Since crude oil is a traded commodity the price is

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

PETROLEUM NEWS & HAPPENINGS Gas Prices Up $2.85 Tomorrow [...]...Read more PSOJ/JIM series to explore Jamaica’s energy options [...]...Read more Venezuela to Free Seized Oil Survey Ship, Owner Says (Update) [...]...Read more 360MW Plant Bidders Object to Calls to Scrap Process [...]...Read more Bahamian Group Part of BEC Bid [...]...Read more Sol Group Signals Plans to Enter Gas-Station Business [...]...Read more

Energy Minister at power plant opening: La Brea to be next Pt Lisas [...]...read more

Venezuela, Guyana to meet over seized oil ship, detained crew [...]...Read more When should you charge your electric car? [...]...Read more Jamaica to host regional energy confab October 25 [...]...Read more

Robert Jackson Passionate about Petroleum Industry [...]...Read more

New Approach to Energy Project [...]...Read more

Russians planning major Caribbean oil study [...]… Read more

360MW Rankings Revealed too Early [...]...Read more

Trinidad officials visit Houston to promote offshore bid [...]...Read more Five Caribbean countries among highest for electricity prices in Americas [...]...Read more

Residents of Fruitful Vale Get Electricity [...]...Read more IMF warns: Trouble for T&T if energy prices fall [...]… Read more JPS helps to secure VJH Neonatal Unit [...]...Read more

Peru to attend 2nd ECLAC’s Energy Ministerial Meeting [...]...Read more

Jamaicans question deal with Australian company [...]… Read more

BEC Profit Margins ‘Wiped Out’ In 2010 [...]...Read more

CGX plans further seismic studies offshore Guyana [...]...Read more

EWI Delivers – Energy Minister Welcomes Bid Bond [...]...Read more Cuba looks to become self-sufficient in oil consumption [...]...Read more Northern Petroleum set to realign license stake offshore French Guiana [...]...Read more Energy World eyes big savings for Jamaicans [...]… Read more

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Closer energy relations proposed with Trinidad [...]… Read more Phase Out Energy Subsidies – IMF [...]...Read more EPOC Uneasy About 360MW Power Plant Construction [...]...Read more

FOR MORE PETROLEUM NEWS VISIT CIPPET.ORG

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

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REGULAR UNLEADED GASOLINE AVERAGE PRICES AT THE PUMP OCTOBER 2013 Retail prices for Regular Unleaded Gasoline in the thirteen Caribbean countries reviewed at the end of October 2013 showed marginal decreases in prices for seven countries namely; Bahamas, Barbados, Dominica, Grenada, Jamaica, St. Kitts and Nevis and Suriname between 2.3% and 5.5%, the highest of which Suriname experienced. Prices in Antigua and Barbuda, Belize, BVI, St. Vincent and the Grenadines and Trinidad and Tobago remained stable. However, there was a minimal increase in prices of 1.2% in St. Lucia. The average retail price at the end of October 2013 was 2.3% lower than the previous month.

Regular Unleaded Gasoline: Average Retail Price (US$/Litre) 2013 COUNTRIES JAN FEB MAR APR MAY JUN JUL AUG SEP

OCT AVG

ANTIGUA/ BARBUDA

1.23

1.23

1.23

1.23

1.23

1.23

1.23

1.23

1.23

1.23

1.23

BAHAMAS [91 OCT]

1.37

1.41

1.52

1.50

1.43

1.43

1.42

1.44

1.44

1.37

1.43

BARBADOS

1.58

1.58

1.58

1.58

1.71

1.63

1.64

1.64

1.69

1.63

1.63

BELIZE [87 OCT]

1.43

1.47

1.52

1.54

1.53

1.55

1.53

1.53

1.53

1.53

1.52

B.V.I [87 OCT]

1.21

1.21

1.30

1.25

1.23

1.29

1.26

1.26

1.28

1.28

1.26

DOMINICA

1.18

1.20

1.28

1.28

1.28

1.28

1.28

1.28

1.26

1.21

1.25

GRENADA (95 OCT)

1.29

1.29

1.32

1.35

1.33

1.31

1.32

1.33

1.33

1.30

1.32

JAMAICA 87 Octane[E10]

1.25

1.28

1.26

1.24

1.25

1.25

1.26

1.27

1.21

1.16

1.24

ST. KITTS/ NEVIS

1.35

1.33

1.35

1.22

1.17

1.24

1.21

1.20

1.31

1.26

1.26

ST. LUCIA ST. VINCENT/ GRENADINES SURINAME [95 OCT] TRINIDAD/ TOBAGO [92 OCT]

1.26

1.26

1.28

1.30

1.32

1.32

1.31

1.31

1.31

1.33

1.30

1.22

1.22

1.12

1.15

1.17

1.17

1.17

1.14

1.14

1.14

1.16

1.42

1.47

1.54

1.47

1.45

1.46

1.44

1.51

1.46

1.38

1.46

0.42

0.42

0.42

0.42

0.42

0.42

0.42

0.42

0.42

0.42

0.42

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.

SEE RETAIL PRICE CHART on page 6/

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

Comparative Retail Pump Prices Regular Unleaded Gasoline OCTOBER Avg vs 10 Mths Avg (Jan - October 2013)

1.80

US$/Litre

1.60 1.40

1.20 1.00 0.80 0.60 0.40 0.20 0.00

13 Caribbean Countries

See prices for all products at www.cippet.org

Gas Station, Georgetown, Guyana . Image source: http://www.caribbeanpix.com/photos/

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

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Average Weekly & Monthly Crude Oil Prices (Aug October 2013) 111.0

108.8

109.0

107.0

US$/BBL

107.0 105.0

103.1

103.0 101.0 99.0 97.0

Aug

95.0

WK1

Sep

Oct

WK2

WK3

WK4

MTH AVG

Period

Average Monthly World Crude Oil Prices (2010 - 2012) 106.0

110

109.61

100

US$/BBL

Analysis of the International Crude Oil prices over the three months period August -October 2013 saw prices in October averaging US$101.26/BBL. When compared to the average prices seen in August and September this average price was approximately 4.3% and 5% lower respectively. The highest weekly price seen in October for the product was US$103.14/BBL - reflected in week one while the lowest price recorded was US$97.57 seen in week four. An average of the three month’s average prices reflected US$104.56/BBL. The decrease in crude oil prices is a consequence of an increase in surplus production capacity and lower consumption.

88.14

90 80 70

2010

2011

2012

60

Jan

Feb Mar Apr May Jun

Jul

Aug Sep Oct Nov Dec

Period

Yr Avg

Featured Offers: 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.

Subscriptions If you wish to subscribe (free of charge) or cancel your subscription to the CARIBBEAN PETROLEUM UPDATE, send us an email at:

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Ceis petroleum update october 2013 issue  

Ceis petroleum update october 2013 issue

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