Oil was lolloping at just over US$53 at the start of last week. For T&T, that looks like trouble for 2015, maybe kicking in right after the election.And our Caribbean neighbours? They took a nasty knock in the days of high prices. Jamaica was paying more for imported oil than it earned from tourism. Time for them to celebrate a New Year, awash with cheap oil?Not really. It won't work like that.
Let's start with PetroCaribe. Venezuela's generous financing cushioned the impact of US$100 oil; but it could give a nasty kick on the downswing.With oil at US$100, countries like Jamaica had half the cost of Venezuelan oil rebated as a low interest loan. That left just US$50 to pay in cash up front.
Venezuela's President Nicol�s Maduro announced on Monday night that his country's crude was selling at US$48. At that level, the loan factor drops to 30 per cent. So that means an up-front payment close to US$34.Venezuelan oil prices have halved since July. But PetroCaribe importers have saved less than one-third of their up-front payments.
And that's if PetroCaribe keeps flowing. If the bounty stops, Caribbean importers will be paying around US$50–pretty much the same as their up-front payments before the current slide.Oil minister Rafael Ramirez told PetroCaribe energy ministers in November that Venezuela remains "firmly committed." But that was with Venezuelan oil still selling at over US$70. Shipments under the scheme were cut back by up to 20 per cent last year.
Maduro spoke on Monday of an "oil war" launched by his country's enemies, who aim to "re-colonise and destroy our revolution, and cause economic collapse." Next day, he promised a "year of great change of mind" and in the Venezuelan economic model," with an end to "the bourgeois version of power."
To raise quick cash, Venezuela has been selling its rights over PetroCaribe debt to (eminently bourgeois) Goldman Sachs. The Caribbean beneficiaries' interest rates remain low–but if they default, they will now face unforgiving commercial creditors.Let's take it that PetroCaribe continues; so, some useful savings on oil import costs. What does that mean at the gas pump?
The Private Sector Organisation of Jamaica complains that the Petrojam refinery–joint-owned by the Jamaican and Venezuelan governments–is quick to raise fuel prices when crude costs jump, but slow to pass on the benefit when they fall.From June to November, pump prices came down by around ten per cent. That's good news; but not a game-changer. The story is the same across the region; and for electricity prices as well as gasoline.
What most Caribbean economies need is a boost to tourism. With high oil prices, fuel was around 40 per cent of airline costs. So will we now see lower airfares, and a surge in tourist travel?Only up to a point; and not straight off. The big international airlines hedge fuel costs through the futures market. That buys protection against a sudden hike in oil–but it also means they do not benefit immediately from the downswings.
Lower oil prices will not fully work through to airline fuel costs until perhaps the second half of 2015. That is way too late for a payoff in the current tourist season.Even in 2016 the full savings may not be passed on. Airlines want some profits after their recent squeeze; and they want to invest in new aircraft. Optimistically, one analyst told the New York Times last month that he expects airfares to come down by around five per cent.
That has to be a fuzzy figure. Even the futures traders can have little idea where oil will be trending a year from now.Tough times have pushed the Caribbean tourist economies into survival mode. But they need to plan long-term. The Caribbean's market share slipped from 2.5 per cent of world tourism in 2000 to just 2.0 per cent in 2013.
Tourism costs need to come down. An IMF study published last month launched a "Week at the Beach" index. That compares tourist costs for a mid-price hotel, taxi fares, meals and a couple of daily drinks.
In the English-speaking Caribbean, these were almost double those of Mauritius and the Maldives. In the Thai resort of Phuket, tourists could spend less in a full month than they would during one short week in the Bahamas. Meanwhile, lower airfares will benefit long-haul destinations in the Indian Ocean and the Pacific more than they boost the Caribbean.
The Caribbean is awash with resources for geothermal, hydro, solar, wave, wind and oceanic thermal energy. To bring down costs long-term, investing in renewables makes far more sense than riding the swings of the oil market.That's before we start looking at climate change and the carbon impact. Running the math with oil at US$50, the big renewables schemes look less attractive. But oil will not stay close to US$50. The markets take a short view, but the New Year is a time to look ahead.
