As oil prices on the global market climb to seven-year highs, managing director of Petrojam Winston Watson is warning Jamaicans that further price hikes could be on the horizon.

“OPEC (Organization of the Petroleum Exporting Countries) did not increase their production the way people expected so that drove up the price of crude oil, and if the price of crude oil goes up the price of finished products will go up,” said Watson. Prices are up 37 per cent since the start of the year.

On Monday US crude prices jumped 1.5 per cent to close at US$80.52 per barrel for the first time since 2014. The global oil price hike has stoked fears of inflation in economies which are already struggling to recover from the effects of the coronavirus pandemic. At the same time, OPEC and its allies known as OPEC+ have decided to stick to the production arrangement which was made in July. Under that arrangement OPEC will increase oil supply by only 400,000 barrels per day, an increase which is woefully inadequate to meet the global oil demand as economic activity picks up from the lull of lockdowns due to the pandemic.

“We’re a price taker in the scheme of things; we buy from the world market; we’re a very small player in the world market, so we don’t have a lot of influence in terms of where prices are going, so there’s not really a lot that Jamaica can do. We just have to practise conservation which we’ve said many times is probably the best thing we can do in this environment,” Watson pointed out.

In the meantime, he explained that a part of the problem is the transformation being experienced in the European energy market.

“What is happening is that in Europe the countries are switching from LNG (liquefied natural gas) for electricity production to using oil. So that is driving up the demand for oil which is driving up the price of gasoline. Remember there was a shortage in the UK because of the shortage of tanker drivers as well. So when that happens the producers in the US send their products to the UK and Europe and that pushes up the price on our reference market which is the United States and therefore prices could be going up in Jamaica,” Watson continued.

Nevertheless, Watson said he remains hopeful that oil prices will decrease soon.

“We’re getting into the winter season now in the US, which is our reference market, and when you start going into the winter season the demand for gasoline tends to go down. So I am anticipating that with the demand going down we should see some easing of prices.” Watson further explained that it’s heating fuel that tends to go up during the winter season and not necessarily gasoline because fewer people are driving.

However, he admitted that with “the high level of confidence surrounding vaccine efficacy and the pandemic easing off, you could see some uptick in the marketplace, but I am optimistic that it will decline as we get closer to the winter months”.

Notwithstanding, Jamaicans may have a few more weeks before they start experiencing the full brunt of the oil price hike. This is a result of Petrojam’s purchasing mechanism which sees the refinery buying oil from the market weeks in advance.

“Depending on the storage and the demand right now we tend to go to market anywhere from three to six weeks in advance,” said Watson.