Officials says fuel costs won't drop just yet
Barbadians will get lower electricity bills this month as a result of a fall in the price of oil on the international market, but consumers should not expect any reduction in the price of fuel at the pump or cooking gas anytime soon.
Well-placed sources have told Barbados TODAY that with the price dipping below $50 per barrel, January’s bills would show a decline in the fuel charge – which contributes to the overall Barbados Light & Power bill – by 9.25 cents per kWh.
The fuel charge on electricity bills has been falling since August last year when it stood at 46.35 cents. However, major stakeholders in the industry, including Government sources, have indicated that the downward movement of fuel prices would be much slower.
“It is just a matter of a couple of months and I think the decline would not be as rapid as we have seen in the international oil markets, but it will be a more gradual decline, eventually settling,” Chief Executive Officer of Rubis Caribbean, Mauricio Nicholls, told Barbados TODAY.
“It depends on when the international oil prices settle, but eventually they will settle at a lower level than what we have today.”
Nicholls said another factor that would determine the timing of any reduction in petroleum prices being passed on to the consumers was the level of the existing stock.
“I would say give it a couple more months for . . . the inventories to be depleted, for those inventories to be replaced with low cost inventories, and for prices to come down gradually to a level that is consistent with the international oil prices,” he suggested.
A Government source echoed Nicholls’ comments, noting that if the world oil prices remained low and the current local stock depleted, consumers were likely to reap the benefits.
Meantime, economist Dr Justin Robinson said that with Barbados’ oil import bill standing at about $700 million per year, the fall in global petroleum price would positively impact on foreign exchange levels.
“We still import a substantial amount of oil. It would cost us less foreign exchange to bring in the same quantity of oil. So if there is a sustained decline, it certainly would help us on the foreign exchange side,” Dr Robinson told Barbados TODAY.
“There has been a sharp decline. I expect it would rebound; it would not necessarily stay this low. But I would not expect it to go back up to about $70 [per barrel] where some people think it might settle. But that’s lower than the price we have been paying for a long time.
“That lower price will feed through, given the mechanism that is in place. But when that feeds through would depend on when the oil company actually purchases because they don’t buy every day or every week. So if they bought last week and then they next shipment is three weeks, then they would be paying the price in three weeks time. A lot would depend when they buy.”
Dr Robinson agreed that if it was a sustained decline, Barbadians would benefit at the pump.
Meantime, Nicholls said the island’s oil source was also a factor in when, or if, the prices were passed on.
He pointed out that a significant portion of Barbados’ imported fuels come from Trinidad, the cost of which did not necessarily reflect the cost of oil from the US Gulf Coast.
“That’s another reason why the decline would be more gradual,” Nicholls added.
Commenting on the likely impact that the world oil price could have on the sector, Simpson Oil Limited’s (SOL) Roger Brian said that every month, the Government sent correspondence advising what the change in the price of petroleum products should be.
“We just move the price in accordance with that advice that has been passed to us . . . If you are asking me why the prices have not changed with what’s happening in the rest of the world, then that’s a different question. You should ask the Government about that, not us,” the senior SOL official said.
Treasurer of the local Petroleum Dealers Association Chris Marshall, speaking to Barbados TODAY in the absence of acting president Aldo Ho Kong King who is out of the island, said even if the price at the pump moved downward, he did not expect any increase in sales.
“I don’t see a lot of patterns changing even when the price is very high. It is a product that is necessary, so you can’t do without it. Yes, you may find a little cutting back here, but Barbadians do not generally react to that kind of situation, they don’t tend to change a lot of things,” he noted.
In the latest edition of its Global Economic Prospects issued today, the World Bank said that gains from low oil prices could be substantial for developing-country importers, such as Barbados, if supported by stronger global growth.
The bank said that soft oil prices were expected to persist in 2015 and would be accompanied by significant real income shifts from oil-exporting to oil-importing countries.
For many oil-importing countries, lower prices contribute to growth and reduce inflationary, external, and fiscal pressures, the report noted.