First Look

PSOJ calls for transparency in fuel pricing



The Private Sector Organisation of Jamaica | 2014-12-22 00:00:00

Country not feeling enough of the effects of global price reductions


The Private Sector Organisation of Jamaica (PSOJ) has noted the debate surrounding the relationship between oil price movements globally and the response of fuel price movements locally. We have observed comments, and also received calls from our members, who have expressed the view that local prices are not moving at the same pace when global oil prices are going down, as when they were increasing.

Considering that this is a very important cost for both manufacturers and consumers, our research department conducted analysis on data between January and November 2014, to ascertain if the claims being made could be substantiated. Our findings are as follows:

Price Increase Analysis
• The West Texas Intermediate (WTI) started in January 2014 at US$95 per barrel and climbed to a high price of US$105.24 (during that period) around the end of June 2014. This represented an increase of US$10.24 (10.8%) per barrel.
• Over this same period, the US Gulf Coast (USGC) reference price for regular gasoline started at US$2.55 per gallon and ended at US$2.85 or US$0.30 (11.8%) higher.
• In response to this price increase in crude oil prices, the Petroleum Corporation of Jamaica (PCJ) increased its ex-refinery prices on all three grades of fuel by approximately 10%. Note that this price increase is roughly 0.8% less than the WTI and 1.8% less than that of the USGC reference price.
• In passing this positive price movement to consumers, the retailers in Jamaica increased prices on 87-octane and 90-octane by 8.7% and 8.5% respectively and 2.6% for diesel. Again, note that these increases in retailed gasoline were less than that of PCJ and both WTI and USGC by  approximately 2.0% and 3.0% respectively

Price Decrease Analysis
• At the end of June 2014, international crude oil prices started on a downward trend. The WTI stood at US$105.24 at the end of June 2014 and fell to a price of US$75.24 at the end of November; this represents a reduction of US$30 (28.5%) per barrel.
• Over this same period, the USGC reference price for regular gasoline started at US$2.85 per gallon and ended in November at US$1.98 or US$0.87 (30.5%) lower.

 

• In response to this price reduction in crude oil prices, PCJ reduced its ex-refinery prices on all three grades of fuel by approximately 12%. Note, that this price reduction is roughly 16% less than the WTI and 18% less than that of the USGC reference price.
• In passing this price movement to consumers, the Gasoline Retailers in Jamaica reduced prices on all three grades of fuel by approximately 8.5%. Again, note that these reductions in retailed gasoline were less than that of PCJ’s by an average of 3.5%. Additionally, this differential in reduction is approximately the same as those in the increases, that is, when prices were increasing the retailers were behind and when they were falling the retailers were behind by approximately the same percentages in both cases.

The analysis points to the conclusion that when oil prices increased globally, PCJ's increases were more closely aligned with these, but the response to price decreases by PCJ were not as responsive over the time period studied. The retailers however have followed the same pattern of response to cost movements from PCJ. The conclusion from this therefore is that PCJ had not passed on fully the oil price decreases at the same rate to retailers, over the time period studied.

"The PSOJ is urging that the same response to price movements be maintained when prices are going up or down, especially as PCJ is in a monopoly situation, and recognizing that costs from oil prices remain a significant charge to productivity in Jamaica", says PSOJ President William Mahfood. "We must bear in mind that price decreases can also create a much needed economic stimulus for consumers especially at this time of year", he continued.

 


 




Posted By :Sandra Glasgow (Mrs.)

Company Name : The Private Sector Organisation of Jamaica

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