PETROJAM says it is too early to determine how the latest increase in international oil prices will affect local ex-refinery prices, but the State-owned refinery does not expect any interruption in Jamaica’s fuel supply in the foreseeable future.

The company said the eventual impact will depend largely on how long elevated international prices persist and how that lines up with its purchasing schedule.

“It is too early to tell how this latest round of increases will affect us; much will depend on the duration of the increase versus our purchasing schedule,” Petrojam told the Jamaica Observer on Friday, as international oil prices remained elevated despite extending their recent decline.

Brent crude was trading around US$104 a barrel on Friday, down for a third-straight session as immediate concerns over Middle East supply disruptions eased, while West Texas Intermediate hovered just above US$100.

The refinery purchases crude oil on the international market for its refining operation and also imports finished petroleum products to supplement local production. As a result, movements in global crude prices and US Gulf Coast reference prices for refined products can eventually feed into Petrojam’s ex-refinery prices.

Petrojam, however, said Jamaica’s fuel supply remains secure.

The company said it has already secured crude oil for several months of production and has long-term supply agreements in place for refined petroleum products.

“These measures, in addition to always having on hand at least two to three week’s supply of all grades of fuel [consistent with global best practices], support the sustainability of the energy security we provide to Jamaica,” it said.

Meanwhile, Petrojam reasoned that its crude oil and refined products are not sourced from the areas currently affected by conflict in the Middle East, and it does not anticipate disruption to its existing logistics arrangements with suppliers in the United States, Latin America and the Caribbean.

The company has also put measures in place to limit the risk of supply disruption and contain logistics costs associated with getting products to Jamaica.

On pricing, Petrojam said its weekly ex-refinery prices are determined using an import-parity formula, with the US Gulf Coast market serving as the main regional benchmark for finished petroleum products.

That means local prices are influenced not only by movements in crude oil but also by what is happening in the international market for finished products.

Petrojam told the Sunday Finance that the formula also includes a price-smoothing mechanism designed to prevent sharp weekly movements in international markets from being passed immediately and in full to Jamaican consumers.

The mechanism allows steep changes, including those caused by geopolitical shocks, to be absorbed and reflected more gradually in local prices.

“As the country’s sole oil refinery and the primary distributor of refined petroleum products, we carry a huge responsibility for Jamaica’s energy security. As such, we are always keeping a close watch on changes and happenings in the global market. This includes responding to any unprecedented disruptions in global oil flows that usually spark heightened levels of market volatility,” it said.

— Karena Bennett