World oil prices trending up, but local prices lower

Marcella Scarlett, Business Reporter

The ex-refinery prices of gasolene have been trending down, in some cases reaching their lowest levels since February, this year, despite continued upward movements in world oil prices, but Petrojam has provided no clear reason as to why they are at those levels at this time.

In response to Sunday Business queries, Petrojam has provided information about its pricing mechanism, but did not directly respond to the specific question as to why prices were lower at this time.

There is speculation in the market, however, of interventions in the operations at Petrojam to keep ex-refinery prices lower.

Petrojam's ex-refinery prices for E10 87 and E10 90 on February 24 were roughly $92.02 and $93.68, respectively. On December 1, the ex-refinery prices were $93.44 and $95.10. Prices between March and end of November have been higher, however, ranging from a low of $93.91 and $95.56 to a high of $101.11 and $102.76 for the same products.

Between June 8, following the crisis in the Middle East, and December, prices on the world market have hovered below the US$100 per barrel mark. Using the West Texas Intermediate pricing mechanism, prices on the world market have, since November 30, again reached US$100 and more per barrel, but local ex-refinery prices are lower than when the world prices were below US$100 per barrel.

In April, the Government temporarily rolled back gasolene taxes from 15 per cent to 10 per cent, resulting in a lowering of prices at the pump of between $4 and $5 per litre. This, the government said then, was to cushion the impact of rising world market prices on consumers.

At the time, the Government, in a release, pointed out that local prices were not driven by taxation; rather, it said, they were driven by the price of oil on the world market.

Sunday Business contacted the Ministry of Energy and Mining for an explanation about the lower levels of prices at this time, but an official said they did not know how to explain Petrojam's prices.

"It is still a puzzle how they do things as it follows a sequence sometimes then it does its own thing without any explanation," said the official, who did not want to be identified by name. "When you ask ... (about the prices because) is not logical they don't give an answer," he said, adding, "maybe they have become efficient."

In emailed responses to queries directed to managing director of Petrojam, Winston Watson, the company said "Petrojam's ex-refinery prices have been moving in tandem with the oil market. The company's pricing policy remains fair, open and transparent.
"While changes in the market price of crude oil generally (are) reflected in the refined product prices,
this is not the only determinant," Petrojam said.

USGC reference prices

It said further that "the main input into the ex-refinery pricing formula is the US Gulf Coast (USGC) Reference price for the appropriate product. Movements in our prices have generally been in keeping with movements in these reference prices," the company added.

Opposition Spokesman on Energy Phillip Paulwell zeroed in on the current Petrojam prices, noting that "the price of crude oil (on the world market) and the (ex-refinery) price at Petrojam are usually in sync, but what we are seeing is that they are not anymore."

Paulwell said that "as far as I know, we have been using WTI (Western Texas Intermediate) prices. I don't know when they started to use USGC," suggesting that this could have happened "only recently".

President of the Jamaica Gasolene Retailers Association, Trevor Heaven, explained that the E10 87 and E10 90 were finished products, whose prices were more stable and did not move as erratic as crude.

"I have always been saying I don't see where prices locally track the global prices," said Heaven.

However, he explained that while he did not understand Petrojam's pricing mechanism and therefore could not substantiate the assumptions, he has never seen where there has been an increase in world oil prices and a simultaneous decrease in Petrojam's prices.

"I think that prices are influenced by the elections because when we are going towards a public holiday, there is more demand for fuel and prices inch up a little bit," said the JGRA president. "We don't see prices going up now."

Paulwell said he believed there was something "strange" happening at Petrojam and "this could possibly be political". Said the opposition spokesman: "We are hoping that it is not political intervention because we don't want to go back to 2008 when Petrojam was making a loss."

In 2008-2009, Petrojam recorded $4.7 billion in losses, which the company said was to be explained by volatility in the market caused by the financial crisis.

As a result, the Government commissioned US-based consultants Centennial Group to conduct an investigation. The consultants, using 2008 data, found there were huge disparities between the benefits passed off to consumers when world oil prices decreased and the cushion provided when prices skyrocketed. The consultants said it appeared to them that Petrojam was using a pricing mechanism whereby the company made substantial gains when world prices declined.

They also found that during the period April-June 2008, consumers benefited from relief in the amount of $580 million when prices increased. Ho-wever, after July that year, Petrojam made a gain of $4.3 billion when prices decreased.

The Office of Utilities Regulation said last Thursday that it had discussions about regulating pricing by Petrojam, but nothing has been done since.

marcella.scarlett@gleanerjm.com