Oil companies warn Cayman off price controls

The establishment of government-mandated price controls for petroleum could end with Cayman Islands residents paying more to fill up their cars and air condition their homes, representatives of a local oil company said Monday.

“In a regulated market, the regulator [government] must guarantee a reasonable return to the regulated industry,” said Alan Neesome of Sol Petroleum, after being asked about regulatory issues on Monday. “Sol shares the government’s objective of making fuels available at competitive prices, and the current free market in Grand Cayman is undoubtedly accomplishing this objective.

“Pump pricing here overall [has] decreased substantially, in line with international pricing, whereas prices in other jurisdictions in our region, especially those with regulations, are in many cases higher when compared to the equivalent price per imperial gallon for the same product.”

Progressives-led administration ministers and opposition party members have played up the potential for government to order greater regulatory control of the territory’s two main petroleum suppliers, Sol and Rubis, and of the local retail gas stations. The heightened discussion came about after it was revealed in late October that local fuel prices had not fallen in more than four months, despite a precipitous drop in U.S. and European consumer prices during the same time.

Since November, Grand Cayman fuel prices have fallen at a steady pace, with a significant reduction last weekend. The average price for regular unleaded gasoline dropped from $5.59 in October to about $4.60 currently.

At several Rubis-supplied stations in Savannah and the eastern and southern sections of George Town, the price of regular unleaded dropped from $4.79 per gallon to $4.37 per gallon between Friday and Saturday, a 42 cent decline from Jan. 5. The price reduction for regular unleaded gasoline at Sol-Esso stations was less, but still significant. Most Esso stations’ per gallon prices declined between 20 cents and 25 cents as of Saturday, compared to the price on Jan. 5.

Mr. Neesome said Sol-Esso stations should have started seeing a further price drop on Monday or Tuesday after cheaper shipments of fuel arrived here.

“The infrastructure that Sol has in place to receive ship cargoes and store the product … also means that there is some delay in price changes until the current stock in storage is exhausted,” he said. “The timing of any price change will be mostly dependent on the price and quantity of the product imported and the timing of the vessel coupled with local fuel consumption on the island.”

Opposition Leader McKeeva Bush said last week that he is tired of hearing that from the oil companies.

“Each and every citizen is very curious as to why our gasoline/fuel prices consistently move upward within weeks of any global price increase, but never can follow a downward trend on global fuel,” Mr. Bush said.

Mr. Bush filed a private members motion in the Legislative Assembly last week asking government to consider more specific reporting requirements for the islands’ two major fuel distributors on the “actual costs” of shipments to the territory. Mr. Bush said he believes even $4 per gallon of regular, unleaded gasoline would be too high.

The lowest observed retail price on Grand Cayman as of Tuesday was $4.37 per gallon of regular unleaded gasoline.

Mr. Neesome said, “No one can accurately predict international fuel pricing, there are too many factors involved.”

Whether government will accept Mr. Bush’s proposal is yet to be seen. Planning Minister Kurt Tibbetts, who has responsibility for fuel regulation in the territory, has said he believes the local oil companies “have a lot more room” to reduce prices, but he also understands the “lag” in price reductions that sometimes occurs because of the timing of shipments.

Various U.S. trade publications indicated over the past week that retail prices there may be hitting their lowest level, with North American refineries cutting production due to an oversupply since last summer.

However, daily statistics maintained by the American Automobile Association have not shown any evidence of pump prices increasing. U.S. national average fuel prices for regular unleaded gasoline were US$2.05 on Tuesday, down a half-cent from the day before and down 6 cents from a week ago Tuesday. The U.S. national average price has fallen by more than US$1.60 per gallon since June 2014.

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  1. Really ? A Canadian tourist told me yesterday that gasoline is .88 per gallon in Canada. Don’t they have price control in other parts of the caribbean ?
    Minimum wage BTW is 11.25 per hour in Canada also. Its time that the cost of living goes down in this country and the price gouging stops.

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  2. As a Canadian and a professional Oil Gas Economist I can confirm that the commenter (David Miller) has stated comments are NOT correct:

    a) Gasoline in Canada is priced in LITRES and not gallons as you state. Therefore 88cents/litre = 4.54 litres in a gallon so the price in Canada is 4.00/gallon when its just around 4.50 in Cayman. This is after oil prices dropping in half — Canada’s gasoline just a few months ago was in the 1.2/litre range = 5.45.

    Keep in mind that Canada has one of the largest oil reserves in the world and is attached by pipeline to the world’s major refineries. Cayman has zero oil resources and has to ship in every gallon so it is really surprising how cheap gasoline is here on this tiny isolated island!

    b) Minimum wage varies by province in Canada, most are in the 10/hr range (11.25 is the max). Your example fails to account for currency exchange… 10cad = 1 CAD = 68cents CI therefore this minimum wage is only 6.8o/hr CI.

    Keep in mind that Canada has MANDATORY withholdings for income tax, unemployment insurance, etc. After these deductions the employee is taking home below CI5.

    Isn’t the grass isn’t always greener on the other side? 😉

    If the editor is interested in having an article written to dispel some of these common ‘myths’ please give me a call.

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  3. It’s remarks from Mr Neesome, to quote from above pump prices have decreased substantially in line with international pricing that really annoy the public. What world does this man live on?.
    I paid 5.89 per gallon last May when oil prices were around 107 a barrel.Just over a week ago I paid 4.79 with current oil prices at 46 a barrel.During this period oil has dropped by 57% and our pump price by 19%.
    What I cannot understand is why Government cannot properly monitor local pricing.I assume all oil imports are subject to Government duty, in which case Government knows exactly what the two local companies pay for their product and hence can monitor the profit margin at the pumps, from one shipment to the next. As Government earn substantial revenue from oil imports I trust they take the proper arms length steps to verify the cost basis submitted by the local distributors.

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  4. I believe that it is .88 / litre which would relate to 4.00/ imperial Gallon. Not sure if the tourist was using Canadian which would then make it around CI3.20 / imperial gallon but I am told the price has been hovering around CDN 1.oo/litre. Not sure where in Canada the Min Wage is 11.25 but the Min Wag is between 10.00-11.00 depending on province or territory with higher taxed areas having higher min wages.

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  5. Canada distributes fuel in Litres so with the conversion to Gallons, 0.88 CDN per litre equates to 4.00 CDN (2.75 KYD) per Imperial Gallon. We’re not all that far off that price.

    I just returned from the US, and prices there are approx. 2.80 per US Gallon which converts to approx. 3.37 (2.76 KYD) Imperial Gallon.

    I understand that the there are transportation costs involved in order to get our fuel to Cayman; however, the way I see it is that we are still paying 1.00-1.25 KYD too much per gallon here in Cayman.

    Our electricity is petroleum generated, so there is bound to be a high volume of fuel consumed per month here, and can’t understand how lower prices at the pump would mean higher prices for electricity.

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  6. I don’t follow Jennifer Petrie’s price comparison. The price in Canada is 4 dollars Canadian per imperial gallon. Comparing like with like the price in Cayman is CAD 7 per gallon.

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  7. Our EconomicsStatistics Office(ESO)advises that we consume some 55million gallons of fuel per year with our utility provider accounting for up to 60% of its usage. What ought to be done is for Govt to have cite of and possession of the actual cost documents for each shipment that is offloaded each time a tanker discharges its fuel at our Jackson Point terminal.
    Currently Govt pays no attention to this but only concerns themselves with collecting their levied .75cents per gallon pumped ashore.
    Until and UNLESS the Govt acts with authority to effectively scrutinize these CIF documents and then to cross reference them against actual prices for the same products available on the open Commodity Market the people of these Cayman Islands will forever be held hostage to price gouging and exploitation by our gas/fuel importers.
    The phrase lag time always favored by the Sol-Esso rep Alan Neesome is but a nonsense!and is used to muddy the wateron this issue.
    I say..show us and prove to us what your actual costs are for the various gas/diesel that is imported.
    I am all for transparency but have little time for nonsense from our fuel importers who darn well know that our local gas prices should be no more than 3.00 at the pump and our diesel prices are also super inflated vs actual market prices.
    Little do they know; but their inflated;unjustified and unrealistic prices are impacting us across the broad spectrum of our cost of living.
    It just has to stop!!

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  8. Perhaps, if the industry don’t want price controls, there is a simple way around it which works in many energy markets around the world – a Windfall duty. If a company receives a ‘windfall’ – bonus income derived not from their normal business but from fluctuations in price, then they pay additional duty on it.

    The issue is that they switch price models for their convenience (and profit).

    Remember there are also futures and derivatives markets which allow firms (and I hope CUC is doing so) to hedge against volatility in prices.

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  9. David,

    There is unlikely to be any reduction in CUC fuel costs – this is back side of new tariff policy, when CUC was allowed to pass fuel costs directly to customers as a separate line of expense. Now fuel costs does not affect their bottom line and they are not interested in getting it down. It all goes to customer anyway, so who cares? Probably only customers.

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  10. Yes Mr George I could not agree with you any more . The solution you out line would solve the problem of high price of gas and diesel fuel. The politicians don’t care about the consumers, do you see how much money that the politicians have to raise for their campaign in the election. That money don’t come from the little small guys . All I can say if they forget you at gas pump, you remember them at the poles/election how they would not look after you .

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  11. Good point Andy Gray. The only problem is that the fuel importers would most likely also pass on any windfall profit levy by Govt to we the people.
    We do urgently need,in my opinion anyway; an effective and suitable National Energy Policy.

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  12. Andy,

    Why would CUC hedge against fuel price if they allowed to pass any fluctuations to customers 100%? I would be very surprised if they do. Airlines do it, because they sell tickets several months in advance. CUC just bills you whatever they spent in current month.

    The more logical way for them to operate would be to conclude long-term fixed-price contract and forget about it. Both about increased and decreases in fuel cost and unless Supplier says that they want to reduce price there is no incentive to even discuss it.

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