Thu | Dec 8, 2016

Petrojam cites inventory losses as oil prices fall - Marketing companies turn to state refinery for supplies

Published:Friday | January 23, 2015 | 12:00 AM

Avia Collinder, Business Reporter

Michael Hewitt, acting general manager for Petrojam Limited, says the state-owned oil refinery has been experiencing losses on inventory as prices slid in the last few months.

He said local marketing companies, which import 25 per cent to 35 per cent of local needs, have, within the last two months, been turning to Petrojam for supplies, because of their own fear of inventory losses.

As a result, Petrojam is now selling up to 50,000 barrels of refined products per day, even though its refining capacity is 35,000 bpd, Hewitt told a forum on Thursday hosted by the Petroleum Corporation of Jamaica, the parent of Petrojam, to further explain fuel pricing.

The state companies said that 61 per cent of pricing is linked directly to import parity pricing, which itself reflects gulf reference prices, plus the cost of transport and insurance. Another component are government taxes - ad valorem and special consumption tax - which amounts for 22.8 per cent of the price, while the retailers margins accounts for 16.2 per cent on average.

Petrojam has been forced into a defensive posture on its pricing of fuel, after criticisms from the business community that while oil prices have plunged on the world market, the Jamaican consumer is not feeling the full impact in gas and electricity price reductions.

However, the refinery indicated at Thursday's forum that it was not benefitting from the changing environment.

Hewitt said the current losses were being ridden out with the hope of a change by year end and a return to market stability.

"The basic reason for losses for refineries in markets like this is inventory. You are trying to secure supply into the market. Business profitability directly relates to the value of inventory from period to period. If the value of inventory, by virtue of the price, is going down, then you are going to have losses from period to period," he said.

"We are not prepared at this point to say how much it [the loss] is, because we are hoping that by now and the end of the year there will be some recovery and there will be some moderation."

Petrojam is hoping that supply and demand will soon regain balance soon, leading to a stabilisation of price in the US$70 per barrel region, the acting GM said.

Local marketing companies, seeking to avoid similar losses, have been turning to Petrojam to provide supplies.

Group general manager of the PCJ, Winston Watson, said before oil prices tumbled, Petrojam supplied refined products to around 88 per cent of the non-bauxite market.

But with marketing companies turning to Petrojam for supplies in the last three or four months, and importing less, "I am not sure what the ratio is" now, he said.

"We usually respond to market requirements. If the people who normally import come to us, then we import a little more," Hewitt added.

Petrojam is owned 51 per cent by the Government of Jamaica and 41 per cent by PDVCaribe, a subsidiary of Petroleos de Venezuela of Venezuela.

avia.collinder@gleanerjm.com