October 2014 by Caribbean Energy Information System

CALL: 1-876-927-1779 | CARIBBEAN PETROLEUM UPDATE : OCTOBER 2014

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CARIBBEAN Petroleum Update A Publication of the Caribbean Energy Information System (CEIS)

OC TOBER 2014 ISSUE

Plummeting Crude Oil Prices

IMPACT ON CARIBBEAN ECONOMIES

The sudden plunge in the price of oil is sending economic shockwaves across the globe. Oil exporting nations are bracing for a potential shortfall in revenue while importing nations are benefitting from the lowest prices seen in four years. The Organization of Petroleum Exporting countries (OPEC) and other major exporters of the product will experience the greatest impact. Whilst oil is cheap to produce

in countries such as Russia, Venezuela and Iraq, these countries are vulnerable to lower oil prices since their budgets are based on expectations of oil prices over US$100/bbl or higher. In Russia, the government has shown concern regarding government spending cuts while in Venezuela the government relies heavily on oil revenue for funding social and commu-

nity projects. On the other hand most countries (except Trinidad and Tobago) in the Caribbean, the downward pressure on prices will prove beneficial, not only to consumers but the macro economy as well. Since developing countries import large volumes of petroleum products, lower prices will boost their economies as consumers are spending less on petroleum fuels and hence have more dispos-

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CALL: 1-876-927-1779 | CARIBBEAN PETROLEUM UPDATE : OCTOBER 2014

Plummeting Crude Oil Prices – Impac t on Caribbean Economies continued from page 1/ able income. In this issue of the Petroleum Update we seek to highlight the potential impact of decreasing crude oil prices on Caribbean economies. Since the beginning of the year, crude oil prices have dropped 8% moving from an average of US$94.52/bbl in January 2014 to a low of US$86.02/bbl in October 2014. This reduction in prices is attributed to increased production and supply of oil. Global crude oil prices fell in September due to lower consumption in the Asian and European markets. Also, supply of crude from Libya continued to recover, and sustained growth in U.S. production has put downward pressure on crude prices. Speculative reports are suggesting a further decline in crude oil prices to as low as US$50/bbl if production remains high relative to global demand. For Caribbean nations declining crude oil prices indicate a decrease in import prices and ultimately a decline in the cost of energy. The decline should also be reflected in falling electricity and retail petroleum pump prices. To anyone living in a developing country the present drop in the price of oil is very welcomed as plummeting crude oil prices could prove to have positive effects on the manufacturing sector of those countries. Lower crude oil prices mean lower cost of production, and lower prices of goods and services that depend on oil to be produced. Lower prices mean households should have more of their disposable incomes to spend on other goods and services. A higher disposable income means increase in aggregate demand, which should be offset by an

increase in production, thereby increasing GDP. What is also important here is the rate of pass-through from the decrease in crude oil prices to consumer and retailer prices. If pass-through is high, consumers will benefit a great deal, with the expectation that this will contribute more to GDP growth. However, one question being

asked by most consumers of gasoline and other petroleum products is why is the pass through rate of a decrease in crude oil prices so low? Based on Graph 1 (above), crude oil prices increased 6.8% in February 2014 averaging at US$100.93/bbl. Retail prices for a few selected countries as shown in Graphs 2 to Graph 5 (see above and overleaf) show that

CALL: 1-876-927-1779 | CARIBBEAN PETROLEUM UPDATE : OCTOBER 2014

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oil prices as product price movements. Similar sentiments regarding the level of pass through to consumers were expressed by the Barbadian community. However, although there is the benefit of an improvement to the import bill of non oil producing Caribbean nations, falling oil prices could impact the foreign exchange market by appreciating the US dollar relative to other currencies. Countries like Trinidad and Tobago and Venezuela, where oil represents a significant portion of their exports, may be affected negatively by falling prices. In the Caribbean, Trinidad and Tobago is a major oil producer, where crude oil accounts for one third of export earnings and some 40% of government revenue, falling oil prices if sustained can adversely impact export revenues, government expenditure, foreign exchange earnings and overall demand in the economy. retail pump prices were closely aligned to the increase, however the marginal change in retail prices was minimal when compared to the percentage change in crude oil prices. In addition, crude oil prices declined 7.8% in October 2014 averaging at US$86.02/ bbl and likewise selected countries in the Caribbean benefited from the decrease despite the small change in retail pump prices. The highest marginal decrease was 3.77% in Jamaica and even with this decrease consumers were still complaining of a low pass through rate. The analysis of the price movement points to the conclusion that when oil prices increase or decrease globally, retail pump prices are closely aligned to the change; however, the pass-through is low when prices decrease. If the pass through is low consumers will not receive much of the benefit from the fall in global oil prices and the economy will grow less. In Jamaica, the Government no longer regulates fuel

pricing at the pump, but Petrojam sets the benchmark pricing from which marketing companies add a mark-up. Therefore, while movements in the market price of crude oil are generally reflected in the refined petroleum product prices, it is not the only determinant of final product prices. Other factors include changes in government taxes and exchange rate fluctuations. One important point that must be emphasized is that the West Texas Intermediate (WTI) prices are the most quoted benchmark for crude oil and so any change in those prices will be used as a benchmark for what the change in retail prices will be. However, in the case of Jamaica, Petrojam prices are indexed to the US Gulf Coast Reference (USGC) prices, a benchmark for finished products. It is therefore important that persons are aware of this distinction, as more than often consumers upon hearing updates of WTI price changes; tend to misinterpret movement in crude

On a similar note, if oil prices continue to fall, the Petrocaribe arrangement could be negatively affected. Based on the arrangement, member nations pay forty 40 per cent of the cost of the oil price upfront when it is above US$100 per barrel and sixty 60 per cent at US$80 to US$50 per barrel. In the case of Jamaica, the remaining portion is then transferred to the Petrocaribe Development Fund as a long-term loan repayable at one per cent over 25 years, and the loan proceeds are used to fund development projects and provide budgetary support for the government. This would suggest that member nations may have to find more cash from an already constrained budget to meet the repayment terms as oil prices fall; increase their indebtedness; or agree to some other adjustment such as an increase in the interest

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CALL: 1-876-927-1779 | CARIBBEAN PETROLEUM UPDATE : OCTOBER 2014

PETROLEUM NEWS & HAPPENINGS Data from Energy Ministry shows Gas pains easing next month [...]... Read more Is the oil price fall more than just a coincidence? [...]... Read more 900% Increase in Oil Production, Gas Below $3, Oil to Zero? [...]... Read more Paramount oils growth [...]... Read more

Caribbean Energy Agreement reached for sale of USVI refinery [...]... Read more The Cheapest States for Gas, Just in Time for Your Pre-Winter Road Trip [...]... Read more Caribbean’s Largest Oil Refinery Sold [...]... Read more Two million barrels of oil on ocean floor after BP spill [...]... Read more China Goes On A Crude-Oil Buying Spree As Global Prices Tumble To $85 A Barrel [...]... Read more Offshore Drilling: Big Oil Hits a Gusher of Oil and Gas Discoveries [...]... Read more HOVENSA asked to explain why fuel prices are not decreasing in USVI [...]... Read more Oil price drop won’t impact Mexico’s budget, government says [...]... Read more Venezuela, Ninth-Biggest Oil Producer, Confirms It’s Importing Crude [...]... Read more The real reason gas prices are falling [...]... Read more

Gas prices down $3.01, diesel down $1.37 [...]... Read more Local brewer eyes LNG [...]... Read more Massy Group acquires Colombia energy company [...]... Read more Bahamas Environment Updates Public on Petroleum Legislation [...]... Read more Gas price down $2.95, diesel down $1.87 [...]... Read more Guatemala, Mexico advance natural gas pipeline plan [...]... Read more Oil prices are plummeting. Here’s why that’s a big deal. [...]... Read more Mexico’s Pemex signs Cooperation Agreement with Exxon Mobil [...]... Read more ERA – Winner Of Energy Bid [...]... Read more Venezuela’s deliveries of diluted crude to Citgo fell 57 pct in Sept [...].. Read more Argentina’s Pluspetrol to buy Apco Oil and Gas [...]... Read more Gas price up 21 cents, diesel down 64 cents [...].... Read more

CALL: 1-876-927-1779 | CARIBBEAN PETROLEUM UPDATE : OCTOBER 2014

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Plummeting Crude Oil Prices – Impac t on Caribbean Economies continued from page 3/ rate. The consequence of this is that Caribbean indebtedness may build to even higher proportions of GDP. As the New Year approaches, the uncertainty in the oil markets globally has left the Caribbean in quite an uncertain place. Like all other countries that rely heavily on oil for energy, lower oil prices can help to boost the economies of countries that import huge volumes

of the product, as consumers would be paying less for gasoline and, as such, have more purchasing power. Also, lower price for oil should mean less costly electricity, water and transportation. Additionally, the manufacturing sector should experience a reduction in production and input cost which should at a later date see the prices of final commodities lower for consumers. Caribbean countries that

are benefitting in some way, particularly small states, should maximize their advantage throughout their economies while it lasts since market forces can change in an instant.

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CALL: 1-876-927-1779 | CARIBBEAN PETROLEUM UPDATE : OCTOBER 2014

Prices at the Pump

OCTOBER 2014

Retail prices for Regular Unleaded Gasoline in the eleven Caribbean countries reviewed at the end of October 2014 showed decreases in prices for eight countries: Bahamas, Barbados, Belize, Dominica, Grenada, Jamaica, Monsterrat and St.Vincent and the Grenadines between 0.9% and 3.8%. Jamaica saw the highest price decrease of 3.8%. Prices in the remaining three countries were stable. The average retail price at the end of October 2014 was stable when compared to the previous month. Unleaded Gasoline: Regular : Average Retail Price – January - October (US$/Litre) 2014 COUNTRIES JAN FEB MAR APR MAY JUN JUL AUG SEP OCT AVG BAHAMAS [91 OCT]

1.36

1.38

1.43

1.44

1.41

1.38

1.40

BARBADOS

1.54

1.57

1.59

1.66

1.76

1.81

1.86

1.81

1.78

1.71

BELIZE [87 OCT]

1.41

1.43

1.47

1.49

1.51

1.48

1.54

1.52

1.49

1.47

1.48

DOMINICA

1.15

1.16

1.18

1.19

1.22

1.30

1.25

1.23

1.21

GRENADA (95 OCT)

1.26

1.28

1.31

1.32

1.31

1.27

1.30

JAMAICA 87 Octane[E10]

1.21

1.23

1.25

1.27

1.25

1.26

1.25

1.23

1.18

1.24

MONTSERRAT

1.25

1.22

1.25

ST. LUCIA

1.32

1.31

ST. VINCENT/ GRENADINES

1.08

1.07

1.09

1.10

1.13

1.16

1.17

1.18

1.16

1.13

SURINAME [95 OCT]

1.39

1.43

1.46

1.47

1.43

1.41

1.43

TRINIDAD/ TOBAGO [92 OCT]

1.32

1.31

NOTE: *US Gallon = 3.785 L *Imperial Gallon = 4.546 L *As at November 1, 2009 MTBE was phased out from all gasoline blends in Jamaica and replaced with 10% Ethanol.

Comparative Retail Pump Prices Regular Unleaded Gasoline 2.00

OCTOBER Avg vs 10 Mths Avg (Jan - October 2014)

US$/Litre

1.80 1.60 1.40 1.20 1.00 0.80 0.60 0.40 0.20 0.00

11 Caribbean Countries

See prices for all products at www.cippet.org

International OIL PRICES

CALL: 1-876-927-1779 | CARIBBEAN PETROLEUM UPDATE : OCTOBER 2014

Average Weekly & Monthly Crude Oil Prices (August October 2014)

120 100

US$/BBL

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102.19 94.06

91.44

60 40

Aug

Sep

Oct

FEATURED OFFERS: P E TS TATS - t h e Ca r i b b e a n E n e rg y I n fo r m at i o n System (CEIS) primary report of historical annual petroleum energy statistics provided for 18 Caribbean Countries. Included are data on total energy production, consumption, and trade; overviews of petroleum, natural gas, electricity, as well as financial and environmental indicators for over twenty years.

WK1

WK2

WK3

WK4

MTH AVG

Average Monthly World Crude Oil Prices (2011 2013) 120.00 110.00

US$/BBL

Analysis of the International Crude Oil Prices for the period August to October 2014 ended with an average price per bbl of US$86.02. This shows a 7.8% decrease in price from the previous month, and a 12.2% decrease in average prices when compared to August 2014. The highest weekly price seen in October for the commodity was US$91.44/bbl-reflected in week one while week four accounted for the lowest price of US$86.02/bbl. The average price in October 2014 (US$86.02/bbl) is the lowest prices have been since January 2014. The average price for the period was US$92.42/ bbl. The continued decrease in crude oil prices is as a result of increased production relative to demand and a less than expected global performance.

Period

106.60

106.61

107.81

100.00 90.00 80.00 70.00

2011

2012

2013

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Period

Yr Avg

Scientific Research Council, Hope Gardens, Kingston 6, Jamaica 1-876-927-1779 (Telephone) 1-876-977-1840 (Fax)

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