The following article was submitted by the local oil refinery Petrojam.
IN SPITE of ongoing and rapid increases in international oil prices, Jamaica has continued to offer some of the lowest prices in selected petroleum products, when compared to other regional markets in South and Central America, as well as the Caribbean, says Petrojam.
According to Petrojam, in Jamaica, where petroleum product prices are benchmarked against gulf reference prices and subject to international fluctuations, prices are reviewed weekly.
A review of prices from 1998-1999 showed that premium gasolene was cheaper in Jamaica and the Dominican Republic, as against all other countries in the comparative study. Premium gasolene prices of US$1.33 per gallon, in Jamaica in 1999, were the third lowest among the selected countries.
The price of unleaded fuel in Jamaica was also lower than all other countries in the comparative study, in 1998, with the exception of Guyana. The local price for this product was US$1.41 per gallon, as against US$1.36 per gallon in Guyana. And, in January 2000, unleaded fuel in the Jamaican market was reduced to US$1.36 per gallon.
By the first half of 1999, Petrojam Limited was producing petroleum products at relatively modest prices, when compared against some 25 Central and South American countries covered in an international survey. It is notable that Argentina processed premium gasolene at a cost of US$3.34 per gallon, or some 2.5 times higher than the US$1.38 cost in Jamaica, over the same period.
Jamaica's competitiveness in the pricing of premium and unleaded gasolene in the review period, as against other regional markets, over this period was played out against a background of sharp increases and volatility in global oil prices. These price movements have been of great concern to oil importing countries like Jamaica, as energy is crucial to all sectors of the economy and, ultimately, to economic development and expansion.
Between January 1999 and January 2000, world crude prices spiralled from US$11 per barrel to US$30 per barrel, the highest since the 1991 Gulf War. At that time, shortages and uncertainty of supply triggered the price hike. However, it should be noted that price movements are cyclical, resulting from the imbalance between supply and demand of crude and refined products.
OPEC generally determines its crude production levels based on a target price for which members are willing to supply the crude. This price does not always correspond with actual demand levels for crude, nor do product prices always respond in step with crude prices.
When the cost of crude becomes high enough to begin to affect refiners' margins, that is, low differential between product price and cost of crude, refiners will cut back on crude processing and sell products from their inventories. As inventories become depleted, the genuine demand for crude increases, thereby potentially, further increasing the price which the OPEC suppliers will be able to demand for the crude. Thus, a continuous cycle of low, then high crude supply and demand is set up. This is also affected seasonally by high product demand for recreational driving during the summer months, as well as for heating fuels during the winter months.
Supply and demand
This cycle of supply and demand for petroleum products continues as countries like the United States begin to stockpile heating fuel for the upcoming winter season. OPEC member countries have reneged on the agreement to increase production, and so the limited output could trigger another round of price increases for crude oil.
This is the scenario which countries that are net importers of fuel currently face. The lower inventory levels have caused a surge in demand, which is not being filled because of restricted output among OPEC nations. Now, with the winter coming on in the next two to three months, refineries and consumers in oil-importing countries must brace themselves for a likely increase in fuel prices, again.
The impact of these price increases must be assessed against a set of clearly defined goals established by oil importing nations. These goals include stability in oil supply; prevention of shortages; reduction in inflation and interest rates, and ultimate stability of the world economy.
Recent international developments have resulted in an increase in Petrojam's billing prices and, by extension, pump prices. Ex-refinery billing price for unleaded fuel moved by more than 15 per cent, from $14.32 per litre in June 1999 to $16.88 per litre by January 2000.
Global price increases have intensified between late August and early September, causing a further hike in ex-refinery prices for 87 and 90-octane unleaded gasolene, which moved to $19.85 and $20.99, respectively.
The price of diesel fuel also increased, due to the stockpiling of heating oil for the 2000 winter season.
The price of Liquid Petroleum Gas (LPG), or cooking gas, also increased between January 1999 and January 2000, moving from $5.50 per litre to $6.17 per litre, or 48.5 per cent. All by-products of petroleum, including kerosene and asphalt, were negatively affected by the hike in international petroleum prices. This situation was compounded by the downward movement in the exchange rate of the Jamaican dollar, against the US currency.
Between May and July 1999, Jamaica imported some 2.02 million barrels of oil at a cost of US$33.2 million, or US$16.43 per barrel. Over this same period, this year, oil imports stood at 2.05 million barrels, valued at some US$28.11 per barrel.
Winston Watson, managing director, Petrojam, has emphasised the need for more efficient use of fuel energy among industry and households, alike. "As a non-oil producing country, we must take effective measures to reduce our consumption level which, ultimately, is reflected in our import bill," he stated.
The use of 87-octane unleaded fuel in cars which are manufactured for this grade is one practical and cost-effective way of reducing the country's fuel bill, he noted.
