EDB: As pandemic eases, expect fuel price hikes in the short term

By The Star Staff

An Economic Development Bank (EDB) for Puerto Rico report has validated the effect that increases in fuel prices are having on the economy, EDB President Luis Alemañy said Thursday.

The price of any good can rise when its cost of production increases, inventories are scarce or its demand increases in the market, Alemañy said.

“The price of gasoline is an indicator that in recent times has shown fluctuations, attributable to different factors,” he said. “However, the local increase in the price of gasoline is mainly due to the rise in the price of the barrel of oil because of the reactivation of economic sectors that require greater energy consumption, after the sharp deterioration experienced during the pandemic.”

However, as oil production and supply of fuel increase to meet current demand, the price of gasoline should drop, he said.

The findings were made by the EDB’s Center for Economic Studies, which is headed by economists Gladys Medina and Juan González and provides information to small and midsize businesses.

Medina noted that the price of a barrel of oil fell to historic levels in April 2020.

“The West Texas Intermediate (WTI), one of the oil mixtures produced in the United States and used as a point of reference to follow the status of crude prices in the nation, averaged $16.55 a barrel in that month, reaching negative figures, or minus $37.63, below zero, on April 20 of last year, due to a sharp contraction in the demand for oil and its derivative products, something that had not happened before in history,” Medina said.

The drop in oil demand brought about by the COVID-19 pandemic, together with the restrictive measures to contain it, was greater than any other previously observed, he said. This deterioration in demand caused, in turn, a reduction in the availability of oil and the production of its derivatives. But by May 2021, WTI averaged $65.17 per barrel.

The EDB president said that following a reduction in COVID-19 infections and easing of operating restrictions, the consumption of oil and its derivatives have increased, which can be seen in the price of gasoline. This scenario, wherein fuel reserves had decreased along with a drop in production, was complicated, in turn, by a cyberattack, on May 7, on the Colonial gas pipeline that caused the interruption of the transportation of different types of fuels during several days, from the southern coast on the Gulf of Mexico to the east coast of the United States, he said.

González argued that since Puerto Rico is an importer of the fuel it uses, it is affected by changes in the production and management of the fuels it consumes. However, gasoline wholesalers, importers of petroleum products and electricity-generating companies, including the Puerto Rico Electric Power Authority (PREPA), maintain supplies that protect the consumer from hikes in prices in the short term.

“It is foreseeable that the price of some items and services, including essential ones, such as gasoline, will increase as Puerto Rico, the United States and the rest of the world resume their commercial activities and supply chains are reestablished,” Alemañy said. “However, as the demand for fuels grows, their production and supply are expected to grow, reducing their prices again. Therefore, small and midsize merchants will see their budget plans affected by changes in the price of fuel, either as increases in the cost of travel and transportation, or in operational costs.”

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