The FESCO service station in Bodles, St Catherine in Jamaica (Photo: fescoja.com)

Pain at the pumps: Jamaican motorists brace for fuel increase

The FESCO service station in Bodles, St Catherine in Jamaica (Photo: fescoja.com)

On Wednesday, Jamaica’s sole oil refinery, Petrojam, announced a 1.7 per cent jump in pump prices, reversing most of the cuts from the prior week — in a prelude to what could be weeks of sustained increase in prices due to the impact of Hurricane Ida.

The system made landfall in Louisiana on Sunday as a Category 4 storm with winds of up to 45 miles, forcing the shutdown of 95 per cent of oil and gas production in the Gulf Coast region, according to the Associated Press. With downed power lines and damaged power grids, many in Louisiana scampered to buy gas to power generators and formed long lines outside of gas stations in the aftermath of the hurricane.

In the aftermath of Hurricane Ida, people wait in line for gas Tuesday, August 31, 2021, in New Orleans, Louisiana. (Photo: AP/Eric Gay)

Exxon Mobil on Tuesday said its crews would resume normal operations at its Hoover platform in the Gulf of Mexico that managed to avoid storm damage. The company also said its fuel terminal in Baton Rouge, Louisiana, had restarted operations Monday. Another Louisiana-based energy company Colonial Pipeline said it restored flows late Monday to two pipelines after crews had inspected the facilities. However, Valero and Royal Dutch Shell said they were assessing damage and offered no timetable for resuming operations.

With nine oil refineries, Louisiana accounts for between 13 and 17 per cent of the USA’s refinery capacity and the state is home to three of the nation’s seven largest refineries, data from the US Energy Information Administration showed.

Given the current situation, a CNN report has indicated the possibility of rising gas prices as consumers engage in panic buying until oil refineries resume normal operations. “We have to watch for bad human behaviour,” the article quotes Tom Kloza, global head of energy analysis for the Oil Price Information Service, who warned that continued power outages could drive demand and with it push gas prices up.

According to Winston Watson, general manager of Petrojam, if oil prices go up globally, Jamaican consumers can expect prices at the pump will also go up. In an interview with the Jamaica Observer, Watson indicated that, “with the passage of Hurricane Ida [in Louisiana], there is a shutdown of production capacity and shutdown of refinery supply. With that happening, there is going to be a shortage,” he stated, adding that it is possible that demand could outweigh supply.

Winston Watson, general manager, Petrojam

However, he noted that with the Delta variant of the coronavirus disease creating a third wave and fourth wave in some countries, the hurricane may have an impact, “but we are not sure yet” about the price of oil.

Daryl Vaz, Jamaica’s minister of energy, science and technology, on the other hand, was not so uncertain and said any price increase in the US could translate to Jamaicans paying higher at the pumps. In a response to a media query from Caribbean Business Report, the energy minister noted: “The shutdown of a significant number of oil refineries and wells on the US Gulf Coast is expected to cause a rise [in] the price of oil, and more significantly for Jamaica.” He explained further that local prices were determined by the “price for finished products which are the pricing benchmarks for Jamaica”.

Notwithstanding, Vaz argued that the price increase could be dampened by the continuing travel restrictions.

Jamaica’s Minister of Science, Energy and Technology Daryl Vaz (File photo)

When asked about the possibility of a production cut from the Organization of Petroleum Exported Countries and its allies (OPEC+) ahead of its meeting this past Wednesday, he said,”The meeting is unlikely to bring any change, that is, any agreement to boost or cut production. But we will wait and see.”

OPEC+, after the meeting, announced that its members agreed to gradually increase production by 400,000 barrels per day, starting October 1.

OPEC steadily adds back production as economy recovers

“Prices fell ahead of the meeting but rose afterward to trade little changed on the day. Oil was off a bare 0.1 per cent at US$68.44 per barrel on the New York Mercantile Exchange, while Brent crude, an international benchmark, traded down 0.2 per cent at US$71.47 per barrel,” AP reported.

The price of crude has significantly increased since falling below $0 in April last year. Since August, the price of the commodity has jumped 41 per cent. In Jamaica, pump prices are up 41 per cent since the start of the year.