Rising global oil prices and the resulting price of fuel at the pump have been of major concern to consumers and the topic of much public discussion. However, world oil prices are affected by a number of external factors which are beyond the control of small oil importing states like Saint Lucia. The price of raw crude oil is determined largely by factors affecting its demand as well as supply. Global demand for oil has rose significantly as the major emerging economies including China and India are recovering from the global financial crisis and are now growing at rapid rates. Additionally, we saw further upswings in demand during this winter season which was characterized by low temperatures and required consumers to demand more heating oil for warmth. These factors have contributed into higher demand, than was the case a year ago.
On the other hand, the ongoing conflict in Libya, Syria, and Yemen and other Middle Eastern countries, has caused major concerns and fears of potential disruptions in supply and has placed upward pressures on international oil prices. Moreover, there are increasing worries that the unrest could spread to Saudi Arabia, the world's largest exporter of crude oil, which would cause the price of oil to escalate further. Natural disasters, including hurricanes and earthquakes, which have become more frequent because of climate change, can also add to increased oil prices as they can easily shut down refineries and disrupt production and distribution of oil and oil products.
These factors have caused oil prices to trend upwards and to jump to as high as US$106 per barrel in 2011 as shown in the graph or almost 20 percent compared to a year ago and 51.4 percent since September 2009 when the market pas through was introduced.
Like most of the Caribbean region, Saint Lucia is an oil importing country which depends heavily on imports of refined oil products such as cooking gas, gasoline, diesel for use in vehicles, machinery and for the generation of electricity. Our heavy dependence on oil, cost the economy approximately EC$ 200 million per year in scarce foreign exchange earnings.
When oil prices increase, Saint Lucia and the other Caribbean islands have to buy from Trinidad and Tobago and other sources at these same high international prices. The entire region is grappling with this issue and so, CARICOM's Council for Trade and Economic Development (COTED) met last week to discuss short to long term solutions to reduce our high dependence on imported oil and its impact on our small resource constrained economies.
To date, all regional governments are still monitoring the situation and deliberating on their next course of action. All other Eastern Caribbean Currency Union (ECCU) countries have continued to implement their market pass through pricing system and have not yet intervened to mitigate the adverse effects of the rising price of oil. In countries like Anguilla and Montserrat, prices continue to increase monthly in keeping with their market pass through system. Antigua and Barbuda on March 17, 2011 moved away from the unsustainable subsidization of fuel and increased the retail prices of gasoline and diesel by almost $2.00 to roughly $14.00 per gallon. Currently, gasoline prices are as high as almost $15 per gallon in Montserrat and Grenada and over $18 in Barbados. The current prices in Saint Lucia are close and compares favourably to that in other countries in the Eastern Caribbean.
In the US, gas prices at the pump have increased from $2.65 in March 2010 to $3.60 per American gallon in March 2011 for regular grade. Consumers are encouraged to conserve fuel by car pooling, switching to public transport avoid gas guzzling (SUV) vehicles; switch to more energy efficient (hybrid) vehicles and devices. Similarly, in the UK a response has been minimal (cut in fuel duty by 1 pence per litre) and taxes have actually been increased on oil companies.
Consumers in Saint Lucia are not alone in this plight as consumers worldwide are grappling with rising fuel costs. As we clamor for Government's intervention in providing relief, we must be mindful of the implication of our request and given the fiscal constraints, any decision made by the Government comes at a cost to the taxpayer. Do we really want lower gas prices at the cost of reduced spending on our children's education? Do we really want lower gas prices at the cost of reduced spending on health care, fighting crime, proper roads and infrastructure? Do we want lower gas prices at the cost of increasing our debt to finance present consumption and reap the devastating effects later? This is the reality of the situation and the consuming public should understand this issue in its proper broader context. It should be understood that even if Government collects no taxes on fuel, the price to the consumer will still be high given the rising import prices. This will also result in Government incurring more debt to meet its obligations resulting in higher debt servicing obligations and higher taxes in the future.
The Government of Saint Lucia reassures the public that it is fully committed to the economic and social well being of the country and is considering the best response in the circumstances. However, there are no easy solutions at this time, given all considerations and recognizing the burden rising oil prices places on the consuming public. All options must be weighed carefully. In the meantime, consumers are encouraged to more judicious in their consumption of fuel to minimize the burden on their purses.
For further information contact
Embert St Juste
Director Research and Policy
Ministry of Finance, Economic Affairs
and National Development
American Drywall Building
3rd Floor, Financial Center
Bridge Street, Castries
Telephone: (758) 468-5501