Gas price lag unavoidable

| 19/08/2008

Any comparison of fuel pricing made between the Cayman Islands and the United States is distorted, says Alan Neesome, Country Manger for Esso, because the market and supply logistics are totally different and unequal. He said that Cayman’s comparatively small demand created a lag that was unavoidable given the country’s market and circumstance.

As more people in Cayman query why it is that when world oil prices or those in the US begin to decline prices at the pump in Cayman remain high or even increase, the government says itthat there are a number of complex reasons why prices in Cayman may seem to still be going up even when the price of a barrel of oil decreases and pump prices immediately fall in the US. 

“The USA is an enormous market; they are the largest single consumer of fuel and energy in the world, consuming 20 Million Barrels of oil per day about 24 percent of global demand (86 Million barrels per day). The country has huge fuel storage capacity, extensive pipeline, rail and road distribution networks providing corresponding benefits of scale to pass to the consumer, as a result, price changes are quickly transferred to  the consumer, often daily, sometimes more often,” said Neesome.

With Cayman being a minute consumer in comparison to USA,- only 3 to 4,000  barrels per day depending mostly on CUC demand, Neesome said prices were impacted by numerous other forces. “Esso Cayman schedules deliveries two to three months in advance to secure supplies to ensure the country does not run out of fuel and to get the best price available,” he said. “Cayman fuel volume is very small so Esso consolidates its fuel cargoes with other countries in the region to help reduce unit freight costs. Ships are schedule to load every two to three weeks in summer and after a ship loads it can take another two to three weeks for a tanker to reach Cayman depending on the fuel source and the route.”

As a result there is a significant lag effect in passing on price changes to the consumer in Cayman- whether up or down.  “The fuel being sold in Service Stations today was likely purchased back in mid July at the peak of international pricing,” Neesome said adding that there are a lot of other factors that affect international fuel prices.

“Prices change everyday and the weather can be a major player in hurricane season,’ he said recalling that after Hurricane Katrina international prices jumped more than $1per gallon in just one day before settling back over a number of days.

“No one can predict accurately what international prices may do, there are simply too many components in the equation,” said Neesome. He did however say that fuel prices will soon come down in Cayman If international prices continue their recent downward  trend but that consumers had to understand the factors at play that create the lag.

Both Esso and Texaco the two suppliers of fuel in Cayman have raised their concerns that the government plans to regulate how and when they can increase their wholesale prices will not alter the problem of rising gas prices and the overall international volatility surrounding fuel costs.

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Comments (3)

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  1. Roy Tatum says:

     

    Yes the oil company’s price increases should be regulated- hence I support the Government in this initiative. 
     
     I view the wholesaling of gasoline and diesel as a public utility and as such should be regulated along with all public utilities. Few would disagree that the telephone & electricity companies should be watched over by an appropriate government agency. Fewer would disagree that our Government has a duty to ensure that public  utilities charge a fair price to the public they serve.  Communication, electricity providers, and yes the oil companies, are so vital and have so little competition that we cannot rely on the marketplace alone to ensure fair prices. In my view this is not an issue of price controls – but rather shows a government doing its job by ensuring that the public is fairly treated.
     
    I note the oil companies argument regarding competition and agree to a large extent- a free market is what modern economies are built on.  But free market does not necessarily mean totally free of regulation, and a duopoly does not necessarily ensure that free competition exists.  The oil companies reminded us that gas stations are competitive and now display  their prices for all to see. But it is not lost on me that the requirement to post prices was a request of the PPM Government. Gas stations are doing their part. Gas signage was an important first step – the vetting of gas price increases as charged by the oil companies is the next part of the equation. Only then will we be ensured that this key public utility is playing fair by the public they serve. Now lets expand the net to include Cayman Brac Power & Light as well as the two water companies.
     
    Roy Tatum
     
     
  2. Anonymous says:

    Mr. Neesome’s comments really don’t ring truth – since both companies raises their prices at the same time as the US. In fact during the months of May and June our gas prices were going up every other week. In other words we were keeping paces with the US market. So why aren’t we keeping pace with the price decreases that are happening in North America– in a word greed. also are gas pumps being caribrated. BTW tankers were not coming in every other week when the prices were going, up and up and up.

  3. Anonymous says:

    Even with this explanation I still wonder why fuel prices seem to increase the same or next day that prices increase on the world market. Shouldn’t there be a lag in price increase as well?