Sat | Dec 3, 2016

Petrojam's response to PSOJ's call for transparency in fuel pricing

Published:Saturday | December 27, 2014 | 12:00 AM

THE EDITOR, Sir:Petrojam Limited strongly refutes claims by the Private Sector Organisation of Jamaica (PSOJ) of the lack of transparency in the company's pricing mechanism and that the company has consistently failed to pass on price reductions to its customers.

This statement is particularly disappointing, issued on the heels of Petrojam's release of a comprehensive advertorial titled 'Gas Prices Explained', which was published in both of the country's major newspapers last week. In this statement, the company sought to clarify said concerns and educate the public on its pricing mechanism.

The news release from the PSOJ consistently linked movements in Petrojam's ex-refinery prices for gasoline to the West Texas Intermediate reference prices for crude.

As was emphasized in our statement, the West Texas Intermediate (WTI), which is often referred to by local media, is a widely quoted benchmark for crude oil prices in the United States.

However, Petrojam's ex-refinery prices are not indexed to the WTI prices. Rather, our prices are indexed to the US Gulf Coast Reference (USGC) prices, a benchmark for finished products.

Petrojam is not in the business of selling crude oil. We purchase the crude and refine same into a range of petroleum products. It is important for persons to be able to appreciate this distinction.

DIFFERENCE IN PRICES

In general, there will be variations between the prices quoted for crude oil as against finished products, which Petrojam supplies to the Jamaican market. Reference prices for petroleum products, as reported by different market hubs, for example for the gasoline prices in the USGC, will be relatively higher than WTI crude prices as they reflect transportation costs between the regions, differences in gasoline quality and regional supply-demand balances.

As per our statement over the past few weeks, we would again like to emphasise that there is no one to one relationship between the movement in crude oil prices and the movement in petroleum product prices. The movement in petroleum prices is more closely related to the status of refineries at any given point in time.

As was in the case of Hurricane Katrina for example, which affected the US Gulf area, crude prices and product prices can move in entirely divergent directions, since in that case refineries closed, crude prices fell and product prices increased due to the supply-demand dynamics arising from the particular event.

While Petrojam's ex-refinery prices are indexed to the USGC prices, the Miami prices are used as a point of reference in comparison to the Jamaica prices, as it is similarly supplied with products from the USGC refining area (which is some distance away) and is therefore subject to the applicable prices and market dynamics.

The following are the facts in relation to the periods mentioned in the PSOJ statement - January to June and June to November, as well as the extended period up to present (that is June to the week of December 15).

PeriodExchange%Changes%Changes%Changes2014 Rate J$:US$PetrojamRetail GasolineMiami Gas Jan-Jun 5 12 9 6Jun-Nov 1 16 10 18June-Current 2 25 15 21

For the January to June 2014 period, the PSOJ report indicated that Petrojam's ex-refinery prices for gasoline increased by approximately 10 per cent and retail prices for gasoline increased by nine per cent.

In fact, Petrojam's ex-refinery prices for gasoline increased by approximately 12 per cent during the period and retail gasoline prices increased by approximately nine per cent with Miami gasoline prices increasing by approximately six per cent.

Of significance in this particular comparative analysis however, is the rate of depreciation of the Jamaican dollar, which also has a critical effect on our pricing. Although the data shows a 12 per cent increase in Petrojam's prices for gasoline, the increase is really only approximately seven per cent, considering the depreciation in the exchange rate during the period.

For the June to November period, the PSOJ release indicated that Petrojam's ex-refinery prices for gasoline decreased by approximately 12 per cent and retail prices for gasoline decreased by approximately 8.5 per cent. In fact, Petrojam reduced its gasoline prices by approximately 16 per cent during the period and retail prices for gasoline decreased by approximately 10 per cent while Miami prices for gasoline decreased by approximately 18 per cent.

In addition to the data provided for the periods quoted by the PSOJ, for the period June to current (December 15), Petrojam reduced its ex-refinery gasoline prices by approximately 25 per cent and retail prices for gasoline have decreased by approximately 15 per cent, while Miami prices for gasoline have decreased by approximately 24 per cent for regular gasoline and by 19 per cent for premium gasoline over the same period (an average of 21 per cent).

REFLECTIVE OF MARKET CONDITIONS

As is clear from the numbers provided in respect of all the periods referenced, the changes in Petrojam ex-refinery prices for gasoline are very closely aligned to the changes in the comparable prices for Miami.

This clearly establishes that Petrojam's prices are generally reflective of market conditions whether there are price increases or decreases. This is the principle that has always governed Petrojam's pricing policy over the years.

We hasten to add that, contrary to the PSOJ's assertion, Petrojam is by no means a monopoly in the Jamaican market. There are other companies that are actively importing petroleum products for sale to the Jamaican market and while we are a dominant player in the market, companies are free to set their own prices and do not necessarily need to rely on Petrojam's pricing.

We are available for discussions with the PSOJ or any other entity about our pricing mechanism. At all times, Petrojam Limited seeks to be fair and transparent in its pricing strategy as we endeavour to fulfill our mission of providing petroleum products at internationally competitive prices and quality, acting in the best interest of Jamaica and all other stakeholders.

PETROJAM