The impact of oil prices on Bermuda

Yesterday we looked at the impact that fuel and power inflation has had on Bermudian families.  What wasn't made clear however, was that this only incorporates data up to May 2008 and doesn't give a clear picture of the rest of the year let alone the time since May.  So lets do a little digging and see if we can extrapolate a bit of a better picture.

Here is a chart of fuel and power inflation since Feb 2006 as measured by the May 2008 Consumer Price Index report.  A point of note is that despite the suggested benchmark of April 2006 as being 100, calculated back from the May 2008 total put April at 102.8 so it is assumed January 2006 is 100 for the purposes of demonstration.

 

Now lets compare this to oil prices as acquired from the US Energy Information Administration (www.eia.doe.gov).  We'll use Cushing, OK WTI Spot Price FOB (Dollars per Barrel) prices as a rough benchmark.

 

Now, the interesting thing to note here is that this doesn't actually tell the real picture.  Bermuda, due to shipping duration, actually has to purchase it's oil/fuel more than 2 months before it actually begins being consumed here.  As the Bermuda Sun suggests:

"Experts say that even higher prices are on the way - there is a two-month lag effect before the most recent jump in world oil prices impacts on the island."

On top of that, the prices above are also for crude oil, not the refined diesel we burn for electricity or the gasoline we put in our cars which could cost even more due to refinement.  Add the cost of acquiring and importing the fuel and it's even more expensive than the prices above. 

Lets take a look at the chart again, but this time lets delay the impact of the price of oil by 2 months. 

 

Interesting huh?  Well, lets go a step further and note a few correlations.

Note how roughly when oil goes up, so does inflation?  When oil goes down inflation either goes down or levels off?  It seems the two months delayed estimate is roughly accurate.

So, here's the next question to ask yourself, what happens when the last 2 months worth of increases in the price of oil kick in?

Comments

[Kristianson]

It would be more interesting to know what Belco would do in the event that oil/diesel prices actually went down for a sustained period of time. Would we receive credit's on our fuel adjustments?