CALL: 1-876-927-1779 | CARIBBEAN PETROLEUM UPDATE : MARCH 2015 
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CARIBBEAN Petroleum Update A Publication of the Caribbean Energy Information System (CEIS)
MARCH 2015 ISSUE
IMPACT OF PETROL LEVY ON SELECTED PETROLEUM PRODUCTS IN JAMAICA
Oil price risk is the threat that prices may change substantially and unpredictably. Governments of oil producing countries rely heavily on oil production as a revenue source; as such oil prices play a significant role. Also, governments who rely heavily on imported oil are very much cognizant of the deleterious effects volatile oil prices can have on their economy. Governments of oil importing nations (such as the Caribbean) stand to suffer financially when input prices rise (such as oil) without output prices rising accordingly. However, a rise in input prices will more often result in higher output prices to consumers. In light of
the recent plummeting of oil prices, the Jamaican Government has taken the decision to purchase a hedge in the market against the risk of a sharp increase in prices. Also, a petrol tax will be imposed on major consuming petroleum products such as gasoline and diesel which forms a part of the tax measures to finance the hedge mechanism. In this issue of the Petroleum Update we seek to assess the type of hedge and the possible impact on consumers and retailers. Governments have tried to deal with oil price risk exposure in a number of ways such as a stabilization fund as well as hedging. In the
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energy sector where there is uncertainty regarding fluctuations in oil prices, a hedge fund is considered good financial planning. The hedging principle speaks to either locking in the price of a future production or consumption now or insure against large oil price movements. The Jamaican Government took the decision to hedge against an increase in the price of petroleum on the world market. To pay for this mechanism the government announced the imposition of a J$7.00 per litre tax on petroleum products (E10-87, E10-90, Diesel and Ultra Low Sulphur Diesel) which took continued on page 2/
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