US Gulf Coast Price an Appropriate Reference for Petrojam – Paulwell

Minister of Science, Technology, Energy and Mining, Hon. Phillip Paulwell has defended the use of the US Gulf Coast (USGC) Reference price system by Petrojam in the pricing of its products.

Mr. Paulwell noted it has been suggested that the USGC reference price in the pricing formula should be replaced by Caribbean parity prices, on the premise that the Caribbean parity price would result in a decrease in gasoline and other product prices in Jamaica.

“This argument reflects a fundamental misunderstanding of the oil market. In the same way that the U.S. dollar is accepted as the medium of exchange for most international transactions, the USGC reference price is accepted and used by all market participants in this region of the world to price their products,” the Energy Minister said.

The Minister was responding to questions posed by Opposition Member of Parliament for St. Catherine North Eastern Mr. Gregory Mair in the House of Representatives on Wednesday (February 29).

Mr. Paulwell further explained that the Caribbean Parity prices are themselves derived from USGC reference prices and are likely to be resisted by suppliers who would likely seek to protect themselves by imposing an additional price premium to reflect reduced liquidity and transparency.

"Petrojam’s ex-refinery price is based on a logical arrangement that is indexed to international product prices, and incorporates taxes and business costs to arrive at the final product price. This approach has been demonstrated to provide the most realistic and fairest way of determining product prices and is widely used throughout the world,” the Energy Minister said.

Petrojam’s ex-refinery prices are adjusted weekly to ensure that local prices are consistent with prices in the international oil market. The main input to the ex-refinery pricing formula is the USGC Reference price for the product such as gasoline.  The USGC Reference price represents the cost of the product in the largest geographical market of relevance to trades in the Caribbean/Central American/South American area. Other critical components of the ex-refinery price include logistics costs and Government of Jamaica Taxes, which vary with the price of oil.

“The USGC is an appropriate pricing reference for several reasons including the size, transparency andliquidity of the market. Mexico, Venezuela and Trinidad, Petrojam’s main trading partners, also use the USGC prices to determine the value of their petroleum products,” Mr. Paulwell stated.

By Latonya Linton, JIS Reporter