A longer product turnover time causes a longer lag time for either an increase or decrease in fuel prices in Cayman compared to a country getting daily pipeline deliveries, such as the United States.
This is a point made by management of fuel distributors for the Cayman Islands, Esso Standard Oil Ltd and Chevron (Texaco) Corporation in their answers to questions on fuel pricing.
The fact that gasoline pump prices in the United States have fallen over 20 per cent, in line with the reduction in oil prices, but pump prices in Cayman have fallen between seven to 12 per cent recently has prompted questions from some local consumers, including a Letter to the Editor in Monday’s Caymanian Compass.
Country Manager for Esso Standard Oil Ltd, Alan Neesome said that Esso did not increase wholesale prices to customers in July or August even though it received two gasoline cargoes in those months, both with higher acquisition costs than the previous cargo of gasoline received in mid-late June.
He added that Esso decreased wholesale gas prices in September 30 cents a gallon in line with lower acquisition costs for September’s ship receipt.
The next shipment is due in today. Mr. Neesome said he did not know if there will be further drop in price from this shipment.
He stressed that Esso dealers set their own prices at the pump based on the competitive market environment.
By his calculations, Mr. Neesome said he believes that Esso’s wholesale price has dropped 15 per cent when taxes and port fees are removed. This is consistent with Esso’s drop in acquisition costs, he said. He was not able to list any wholesale prices as they are confidential, he noted.
Mr. Neesome explained how the shipments to Cayman work.
‘Esso receives its fuel in bulk by ship and pays the international market price on the day that the ship loads. Due to Cayman Islands’ small market, there are often weeks between deliveries and not all deliveries include gasoline. Because we receive fuel by ship it causes a lag effect compared with a country getting daily pipeline deliveries; the delivery lag effect usually means prices drop in stages. So far since August, Esso’s wholesale gasoline price reduced 30 cents a gallon (CI$/Imperial Gallon).’
Mr. Neesome said that similarly, when prices are rising internationally there is also a lag as Esso ship deliveries may be separated weeks apart from the competitor’s vessels.
‘Esso may receive a cargo where the fuel acquisition cost is much greater than the local competition’s
acquisition cost for a cargo received on a different date.
‘The benefit of free market competition in Cayman is Esso may not be able to pass on the entire wholesale cost increase to the customer because it could result in Esso fuel being uncompetitive on price in the local market. This means prices tend to rise less quickly and in lower increments, which is a benefit to the consumer.’
Retail District Manager for Chevron Corporation (Texaco) Armando Vegas said, ‘While it may appear that gasoline prices increase more often than they decrease, the tendency is for all of us to be more mindful of when the increase occurs. Fuel prices are determined based on fluctuations in the international energy marketplace, though, in the case of Cayman, there is typically a longer lag time for either an increase or decrease in prices due to the longer product turnover time.’
US fuel pump pricing cannot realistically be compared with the Cayman Islands market, Mr. Neesome said.
‘The US is a macro market, with totally different supply logistics, vast fuel resources, huge fuel storage capacity, a network of pipelines from the refineries to the distribution points, and trucking and fleets which deliver fuel 24 hours per 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.’
Mr. Neesome also said that finished product prices (gasoline and diesel) variations don’t have to necessarily correlate with crude oil price changes.
‘Supply and demand for finished products has a different behaviour from crude oil. Ultimately, finished products will be affected by crude oil prices, but in the short term you may not see it, especially as when we schedule a ship it is snapshot price on the day the ship loads; the loading date is controlled by the refinery, not Esso in Cayman,’ he said.
The current prices (as of Wednesday 18 October) at some gas stations in Grand Cayman show a drop of up to 12 per cent compared to July prices at the pumps, when they were at some of their highest here.
Full serve gas at David’s Esso was at $4.51 a gallon (Imperial) back in July. Now the cost of full serve premium there is down to $4.15, down some 36 cents or eight per cent.
At Texaco Starmart, Shedden Road in July prices were as high as $4.56 per gallon and now they are at $4.15 for full serve premium; down 41 cents or nine per cent.
Esso’s On the Run at Red Bay has come down from $4.73 a gallon to $4.15 for full serve super gas. That’s a savings of 58 cents or 12 per cent to the consumer.
Texaco Starmart on Walkers Road has brought its top price down from $4.45 to $4.15, down 30 cents, down seven per cent.
At Hell Esso in West Bay prices have come down from $4.55 to $4.15 for full serve premium, down 40 cents or nine per cent.
At East End Texaco prices have come down from $4.36 to $4.08 for its top price, down 28 cents or nearly seven per cent.
Diesel’s pump price has come down between five per cent and 11 per cent since July at various gas stations. For example, diesel at Esso on the Run at Red Bay has come down from $4.37 to $3.91, a savings of 46 cents, or nearly 11 per cent.
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