He added that PCJ, which is the parent company of Petrojam Ltd, would avoid implementing a floor to limit price drops.
“When the prices were going up we made money on the inventory. Correct. So now that the prices are going down it would be unfair for us to put a floor to limit those losses,” stated Cargill at a Petroleum Pricing Forum on Thursday at the PCJ Auditorium in Kingston.
“Eventually the market will go back up and we will recoup some of the losses that we made over the last two months. We have lost on our inventory. It is a fact and we are not hiding that,” he said of Petrojam, which hitherto made profit.
But Cargill lamented the disparity in prices at the pumps charged to motorists. He recalled paying $98.90 per litre at one gas station and passing others at $108 per litre.
“Why is there a $10 difference at some stations?” he asked.
Petrojam’s latest ex-refinery prices per litre stand at $89.68 and $93.33 for 87 and 90 octane gasoline respectively. Service stations add their margins and mark-ups in determining the final price to the motorist.
The PCJ noted that the ex-refinery price typically represents 62.5 per cent of the final price to the consumer. Ad Valorem and SCT taxes account for 22 per cent and retailer’s margin at 15.5 per cent, which is an average margin based on a survey of prices at 111 petrol stations across the island.
The refinery utilises an import parity model in its pricing formula.
“The ex-refinery pricing formula is based on the principle of import parity, which basically means that the prices we charge for our petroleum products should not be higher than what it would cost to import the product. We do not use a cost plus model and therefore the prices we charge do not include elements like our operating cost,” Cargill stated.
Some gasoline retailers have indicated that it becomes unprofitable to sell gas below $100 a litre.
“So in a market like this where the prices are dropping so fast it’s almost like you’re constantly going to be losing. So right now the refinery is not in a profitable position, and in a typical environment you would shut down the refinery and try to ride out the constant drop,” stated PCJ group general manager Winston Watson at the forum.
In addressing the forum, the management team said that while movements in Petrojam’s ex-refinery prices generally correlate with US Gulf Coast (USGC) reference prices, these movements are not necessarily equivalent.
“Further factors such as exchange rates, product quality considerations, freight and finance charges and storage and handling charges impact the ex-refinery prices,” Watson stated.