Ceis petroleum update october 2013 issue

Page 1

CARIBBEAN ENERGY INFORMATION SYSTEM (CEIS) OCTOBER 2013 ISSUE

I

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.