INTERNATIONAL oil prices have started to retreat after another sharp run-up, but with Brent crude still above US$100 a barrel and supply risks in the Middle East unresolved, the pullback may offer only limited comfort to energy-importing countries such as Jamaica.

Brent fell about two per cent on Thursday to roughly US$103 a barrel, its lowest level in a week, while West Texas Intermediate slipped to just above US$100.

The decline followed moves by Saudi Arabia to offer additional crude through Oman and begin restoring capacity along its damaged East-West pipeline, easing some of the immediate concern about a deeper supply squeeze.

Oil prices had surged above US$100 in recent days after attacks on Saudi energy infrastructure added to a market already under pressure from restricted movement through the Strait of Hormuz.

Saudi Arabia’s East-West pipeline had taken on greater importance because it allows crude to bypass Hormuz and move towards the Red Sea. Its disruption raised fears that significant volumes of supply could be temporarily stranded, helping to drive prices sharply higher earlier this week.

FALCONER…Any oil price spike, regardless of duration, would have a significant effect on the local economy within a relatively short period of six to nine months.

Some of those fears have since eased, though the situation remains unsettled.

Ship traffic through the Strait of Hormuz was still severely reduced on Wednesday, with only three commercial vessels recorded passing through the waterway, down from 12 a day earlier. Traffic through the Bab el-Mandeb Strait in the Red Sea also remained below normal levels.

The pullback in oil prices helped lift sentiment across global stock markets on Thursday, coming a day after the US Federal Reserve raised interest rates again in its effort to contain inflation.

Still, with Brent holding above US$100, attention remains on how long elevated energy prices could persist and what that could mean for countries that depend heavily on imported fuel.

In Jamaica, inflation is already above Bank of Jamaica’s 4.0 to 6.0 per cent target range.

The Statistical Institute of Jamaica reported that point-to-point inflation rose to 7.9 per cent in August, while consumer prices increased by 0.6 per cent during the month. Fiscal year-to-date inflation stood at 4.2 per cent.

Economist Keenan Falconer said the full effect of persistently high oil prices is unlikely to have been captured in current inflation forecasts, given how volatile the situation remains.

“One thing we can be certain of, however, is that oil prices will remain above pre-conflict projections for the immediate future owing to supply reductions globally,” Falconer told the Jamaica Observer.

He said Jamaica is already seeing the delayed impact of earlier energy and shipping disruptions, arguing that the effect can take several months to work through the economy.

“We are now seeing a lag recorded six months later in both August and September where inflation is tracking between 7 per cent and 8 per cent as a result of the initial shock in February and March,” he said.

Falconer said any fresh oil-price spike could again take time to feed through locally, but warned that Jamaica’s dependence on imported food and fuel leaves the economy particularly exposed.

“Any oil price spike, regardless of duration, would have a significant effect on the local economy within a relatively short period of six to nine months,” he said.

The bigger concern, he added, is how far those increases spread beyond fuel itself.

“The oil shock will become a more serious problem depending on the extent of second-round price increases in the economy, for example the degree to which transportation, food and energy costs rise and are reflected in consumer expenditure items like taxi fares, groceries and electricity bills.”

Falconer said the current stability in the foreign exchange market could provide some cushion by limiting the extent to which higher international prices are amplified locally.

Those movements, however, would not necessarily be reflected immediately at Jamaican service stations.

Petrojam purchases and stores petroleum products in advance, creating a lag between changes in global markets and the prices eventually reflected locally. Its ex-refinery pricing is also based in part on US Gulf Coast reference prices for finished petroleum products, rather than crude oil alone. Petrojam has itself pointed out that crude oil and finished-product markets are separate and their prices do not always move in the same direction.

Locally, fuel prices are still moving higher. Effective Thursday, Petrojam increased the billing price of both 87- and 90-octane gasoline by $3.06 per litre, while automotive diesel and ultra-low-sulphur diesel rose by $10.50 per litre. Kerosene increased by $4.50, butane by $2.00, and propane by 25 cents. Dealers and marketing companies add their respective mark-ups before the products reach consumers.

The latest increases cannot, however, be read as an immediate consequence of this week’s Middle East-driven movement in crude prices.

There is a lag between purchasing, shipping, storage, and sale, meaning movements in the international market can take time to feed through locally. The same applies when prices fall.

The Business Week has sought Petrojam’s assessment of whether the latest international market movements are likely to affect local prices or supply conditions in the coming months, but no response had been received up to press time.

Bank of Jamaica was also approached for its assessment of the possible impact on inflation and monetary policy.

The central bank said it is currently observing its customary no-comment period ahead of the next meeting of the Monetary Policy Committee.

“Bank of Jamaica’s monetary policy communication framework, like that of many central banks globally, observes a period of no-comment on monetary policy issues before meetings of the Monetary Policy Committee,” BOJ told the Business Week.

The MPC is scheduled to meet on September 24 and 25, with its monetary policy announcement due on September 28. BOJ said it would respond to monetary policy questions following that announcement.

The concern over energy prices is not confined to Jamaica.

Central banks elsewhere are also weighing whether the latest rise in oil could keep inflation elevated for longer.

The US Federal Reserve raised its benchmark interest rate by 25 basis points this week, while most policymakers indicated that at least one further increase could be necessary before year-end.

The Bank of England, meanwhile, held its policy rate steady, but warned that a prolonged energy shock could make further tightening necessary.