Crude oil prices tumbled into negative territory this week, but it is too early to tell what the full effect will be on the territory’s gasoline prices, utilities rates and its refinery operation.
As a New York Times sub headline said Wednesday, “The strange thing that happened in oil markets does not mean you can make money storing oil, or that gasoline will cost nothing.”
The territory’s Department of Licensing and Consumer Affairs was already recording dropping gasoline prices at the pumps Friday. The lowest price was then on St. Croix at $1.99 per gallon.
A press release from the agency at that time said, “high fixed reoccurring costs, like electricity, payroll, rent, fees and other financial operating challenges along with the sudden large reduction in the volume of fuel being sold since COVID-19 are among the most significant factors affecting their ability to quickly reduce fuel prices at the pump.”
Some of the above factors also play a part in residents’ utility bills.
Lawrence Kupfer, executive director of the V.I. Water and Power Authority, told the Source Tuesday predictions on crude oil prices are iffy, though he is optimistic. In an April 1 filing with the Public Services Commission, WAPA recommended maintaining the status quo rate of 43 cents per kilowatt-hour.
He added when the PSC holds hearings on WAPA’s LEAC filing in June, both the utility and the commission will be in a better position to understand the impact of COVID-19 and falling crude prices as it relates to the LEAC period July-December 2020. A concern for WAPA is that the COVID-19 shutdown has caused a fall of more than six percent in its sales.
Nine years ago oil went over $100 a barrel, which had a dramatic effect on consumer rates. Residential rates went up to an unheard-of rate of half a dollar for a kilowatt-hour. Oil no longer plays as big of a part in the Authority’s fuel cost. Kupfer said 85 percent of its power is now generated from propane. The price of propane is dropping too, but it was the oil futures market where the bottom fell out this week. Futures were trading below zero for the first time in history. This means that sellers, instead of getting money for crude oil, must pay storage for it.
Whether the falling crude oil prices will affect Limetree Bay Refinery on St. Croix also remains to be seen. The refinery does store oil. On its website it says, “The facility consists of 167 tanks, with a capacity of approximately 34 million barrels.”
Bill Kline, strategic advisor for Gaffney, Kline and Associates, who advised the government on transactions concerning the refinery, told the Source Tuesday, “The current situation is a bit mixed – the value of storage has sharply increased but I think most of the capacity on St. Croix is already leased.” He added that the refining business is very difficult now, but he would be surprised if the recent events would have a “material impact” on the St. Croix facility. Phone calls and emails to Limetree Bay for confirmation were not answered.
According to AAA, average gasoline prices stateside have dropped a dollar in the last year and for regular the average price is now $1.81 per gallon.
Sen. Alicia Barnes has sent two letters to Kupfer this month urging a reduction in LEAC in response to the dropping crude oil prices. Wednesday, she posted on Facebook, “The global oil market crash gives the USVI an opportunity to address the LEAC issue and reduce rates. All hands need to be on deck. WAPA, along with the PSC, EPA and the Legislature should work collaboratively toward this end. There is a clear path forward that includes, among other steps, increasing fuel inventories.”
In a press release in answer to Barnes first letter, the utility said, “The time frame for the implementation of a new LEAC is approximately three months in the future, and there is no one that can predict what will be in store for the territory in July 2020, or the commodity prices that will be in effect at that time, and over the six-month LEAC period through the end of this year.”