Gas prices finally take a downturn

Esso Standard Oil decreased wholesale gas prices to its dealers last week and consequently prices at some pumps have fallen, ending a year of steady increases.

Prices at David’s Esso on Shedden Road fell from $4.43 for super gasoline to $4.16 a gallon on Thursday and from $4.33 to $4.05 a gallon for regular gasoline.

‘It’s really good to bring the prices down, because I pay for gas like anyone else and so I’m happy about it,’ said the station’s Shane Peynado.

In early summer 2004 gas prices at many stations in Grand Cayman were around the $3 mark.

According to Esso Standard Oil’s Country Manager Alan Neesome, the new price decrease to dealers went into effect midnight Tuesday for Wednesday’s deliveries. Since dealers order 24 hours in advance, old inventories at stations should have been used by the end of last week and the new price should have filtered to the pump.

According to Mr. Neesome, the significant decrease on wholesale pricing to customers was in the region of 25 to 30 cents a gallon on gasoline.

‘As I have said previously, Esso does not set the prices at the pump and the dealers are free to price per their own marketing strategy and competitive environment. The dealers that I have spoken to said they would pass on the full decrease to the customer and all dealers get the same wholesale price.’

He commented that as prices decline on the international market they will work through the system, but the market remains volatile and as Esso cannot control the date that the oil tankers load relative to the international price, Cayman is exposed to the same international price fluctuations as any other country.

Explaining why prices in the US went down for several weeks before they went down in Cayman, he said: ‘A ship for Esso typically arrives in Grand Cayman 10-15 days after loading at the refinery. In that time the international prices may have gone up or gone down, which produces a lag effect when comparing actual product cost to the current international price.

‘Generally this means wholesale pricing in Cayman will lag the current international market.’

Mr. Neesome explained that price behaviour responds to several factors such as international price of finished products; timing of loading at the refinery and the arrival of new tankers to the Cayman Islands which may have a price lag; inventory aspects; local competition between the oil companies and; dealers’ pricing strategies within the country.

‘It is difficult to know or predict when local prices may go down when international prices go down, as it is difficult to know when an international price increase is going to affect a local market.’

He went on to explain that compared to Cayman, the USA has vast fuel resources, huge fuel storage capacity, a network of pipelines from the refineries to the distribution points, and trucking fleets which deliver fuel 24 hours a day, 365 days per year.

‘Fuel prices fluctuate daily on the international market and because the USA’s consumption rate is so high, international fuel pricing fluctuations tend to work through their economy fairly quickly. He also said that the scale of their operations also allow efficiencies in distribution that Cayman does not benefit from.

‘Cayman service station dealers are subject to the same local market forces as all Cayman residents, e.g. the recent high level of inflation following Hurricane Ivan as well as the increased cost of electricity, all of which have added to the cost of individual service station operations and the cost of fuel distribution on the islands,’ he said.

The Esso manager explained that Grand Cayman relies solely on fuel supplies delivered via oil tanker by sea and Esso currently receives a tanker every two to three weeks. Esso pays the international price at the refinery on the day the ship loads and to get better economy of scale for the relatively small volumes of product, the ship takes a route that may include several other countries as well as Cayman.

But Mr. Neesome wenton to explain that the situation is further complicated by a number of factors, including changes in the price of crude oil, which makes up to 50 per cent of the price of gasoline, government regulations and taxes, supply and demand, transportation costs, and competitive market conditions in the respective country.

‘So it’s difficult to point to any one thing that’s affecting the market at a given time,’ he said.

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