Why Is World Crude Oil Price Decreasing While Gas at The Pump In Barbados Is Increasing?

BU’s position regarding Barbados’ heavy reliance on fossil fuel generation has been articulated several times. The fact that successive governments have demonstrated a high level of ignorance by not prioritizing an alternative energy policy belies our boast of being a highly educated nation.  If it is one thing we have become good at in recent years is finding reasons not to get up from our tailbones and find solutions to problems. We have become intoxicated by the good life; however such is defined.

One issue which has been raised since this DLP government assumed office is the price mechanism used to determine energy prices. Barbadians have been informed by the government that the policy of the previous BLP government of subsidizing the energy price was unsustainable and that the Barbados National Oil Company (BNOC) had become technically insolvent as a result. We have had to take the word of our policymakers because empirical information has never been made public as far as BU is aware.

The wall of silence which has surrounded the issue of how government price energy is compounded by the not insignificant electricity bills which consumers have been receiving from the Barbados Light & Power (BLP) in recent months. The public outcry has forced the reclusive Sir Neville Nicholls, head of the Fair Trading Commission (FTC) to defend a recent decision by the FTC to give BLP a 10% return on its rate base. The revelation that BL&P generated 45 million dollars in profit has not helped to placate Barbadians labouring under the prevailing hard economic times.

The question which has piqued the curiosity of many Barbadians is why has the energy price in Barbados been rising when crude oil price on the world market has been decreasing?

In mid-April an indicative price of crude oil was listed at USD109.00 and a check of Bloomberg as at opening 18 August 2011 quotes Nymex Crude at USD86.00. Conversely, the price of gas at the pump in mid-April in Barbados was $3.17 per litre and the most recent increase 15 August 2011 pushed the price to  $3.36 per litre.

In the absence of a clear communication from government concerning its energy policy, Barbadians have been left to speculate as to why energy prices have remained high relative to the price of crude oil on the world market. Barbadians, who from recall can be described as taxpayers, deserve answers to reasonable questions from the government it elected to carry on its business. Could it be the BNOC speculated that oil prices would rise when the Libya skirmish erupted and decided to enter into forward contracts for 6 months and this explains the situation we find ourselves? If this is the case is it not better to come clean with Barbadians?

The silence of this government on critical issues has been an alarming characteristic of the Stuart administration. It seems even the ‘blustery’ Minister of Agriculture David Estwick has been called into silence of late. The DLP government is making it more difficult to be re-elected in an environment which is already so given the economic challenges being experienced.

An expectation by many is that the current budget debate – a lacklustre affair so far – will be used by Prime Minister Fruendel Stuart or Minister of Finance Sinckler to apprise Barbadians – taxpayers – on this matter. If we are lucky we may get to hear the announcement of the Chief Justice of Barbados, another matter which Barbadians have been forced to speculate.

0 thoughts on “Why Is World Crude Oil Price Decreasing While Gas at The Pump In Barbados Is Increasing?

  1. You’re probably right about the hedging. In many businesses that use commodities, you have to take a bit of a gamble, and under recent circumstances, it was not unreasonable to assume that oil prices would go on rising. This being the case, the BNOC probably bought oil for delivery in the future at prices that were higher then than they are now. That is a chance that you take – it doesn’t always work out. Sometimes you take a position at the peak price thinking that it will keep rising, only then to see it fall. Your inventory then has to work through before you can bring the price down.

  2. My layman’s interpretation is that the price set by government for gasoline is based on the price when it was purchased from the “supplier/wholesaler”.

    The price on the world market is only relevant as a guideline.

    It would be useful if one of our resident economic “experts” would inform the BU family.

  3. BL&P said charges for August 2011 will decrease. I now ask if the fuel that they bought in July was exhausted and they have purchased fuel August 1, 2011 for servicing consumers in the month of August 2011 at a reduced rate. Should that be the case I understand how electricity charges can be reduced for the month of August. If not, then July 2011 electricity charges should also be reduced because the company would be suggesting that the purchase of oil in July was at a reduced rate (i.e. if they are using purchases in July to service August).

    Or, is the consumer being charged for at anticipated oil reduction now that we hear in August that the oil is reduced? i.e. provided they are using previously bought oil and a high mark-up rate inthe month of August.

    Mind you I appreciate the benefit. I am just looking at the process and equity for the consumer by decision-makers.

  4. If they had bought oil at the higher prices before the price decreased I can understand, but why don’t the flipping government reduce the VAT ? They are profiting and jucking out the consumer eyes in these hard times. They have NO sympathy for the consumers. And at least they should say something publicly. They did this two days before the budget and not a word about this during the budget. The government really believe that the people are fools and treat us accordingly. Perhaps we are!

  5. They don’t need to reduce vat they can simply reduce the 40% import duty on petroleum products because as we know 40% of $100 dollars is 40 and 40% of $200 is 80. Maybe they can reduce it to 30% or 35% as this along with the high cost of gasoline and diesel are suffocating consumers and businesses. I now pay more even for a hair cut because of the spiraling cost of power.

  6. Was looking forward to an adjustment in the tax addressed in the budget just delivered. Maybe the hedge will expire shortly and the market price will take affect.

  7. Knight of the Long Knives
    Everyone seems to forget that this government increased the import duty on petroleum products, that along with the VAT increase is what killing this country. It seems to be an agreement with this government and the IMF, therefore nothing can be done about the reduction. In fact the IMF is squeezing government’s hand to make the increase in VAT permanent. However, the gravy train will come just after or just before the 18 months for the increase in the VAT is over, by then it will be too late.

  8. David
    Then the DLP government needs to level with the citizens, everything seems to be done in secretcy and the public is getting sugarcoated reports from them. Kellman last night was trying to tell “fool” bajans that thing are better now than under the BLP government, yet today when bajans go into the supermarket they can’t see it. When Sealy tell bajans that we’re having a bumper tourists season and it is not reflecting in the stores or hotels then people are confused. If you had a store and many people pass through and look but don’t buy, would you say you’re have a thriving business?

  9. Isalndgal, I don’t want Government to reduce the VAT I am asking Government to remove the VAT from the electricity bill we are still paying VAT passed on by BL&P on the Fuel Charge. Remove it completely if we are going to be asked to pay for fuel.

    Sinckler said that the previous Administration subsidized fuel and the NPC was placed under tremendous pressure, so remove the VAT

  10. @Home …I was being generous when I said to reduce the VAT. I agree with you that they should remove the VAT but we know that will never happen. Imagine we paying for the raw material to make the product and also paying for the product , something real wrong here.

  11. Since a precedent was been set by the BL&P, what if the BWA or LIME ask for the same thing? What makes electricity more important than water?

  12. Wake Up
    “This being the case, the BNOC probably bought oil for delivery in the future at prices that were higher then than they are now”

    It appears that a statement was made in Parliament that the GPB is locked into a price of USD140 per barrel from Trinidad, our sole supplier. It seem that this has been so for some time and will be so for some time to come. Now if anyone wants to speak about our Caricom brethren, that’ll be fine, but I would rather refer to a collection of Jack Asses that has been filling Parliament for the thirty odd years that oil pricing has been a known threat to our existence and the shear lack of competent negotiators that we have been saddled with as a country.

  13. Oil prices droped again today on the news that Gaddafi’s days are numbered and the “REBEL” have closed in on Tripoli…The price of CRUDE* may be coming down but before “Wall Street made derivatives commonplace, the prices of commodities were more straight forward. These days, the commodity prices are impacted profoundly by future expectations. The price of oil is affected by the confidence that people have in stable markets, by international tensions and the likelihood of war. When markets perceive risk and possible war that could reduce supplies, prices reflect that…”


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