Oil price plunge may lead to lower Belco bills – The Royal Gazette | Bermuda News, Business, Sports, Events, & Community

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Oil price plunge may lead to lower Belco bills

Belco customers may get a boost from record-breaking lows in crude oil prices that shook world markets this week.

Belco pointed out that it used heavy fuel oil to generate electricity, which is refined from crude oil.

History showed that the fuel adjustment rate in Bermuda fluctuated in close correlation to crude oil prices — although with a lag of about three months between a move in crude oil prices and a corresponding impact on the fuel adjustment rate.

Belco said it always tried to source the lowest cost and most secure sources of fuel.

A spokesman added: “In order to ensure a reliable and cost-competitive supply of fuel, Belco regularly conducts competitive bids for fuel supply, whereby suppliers are selected based on their proven ability to reliably supply fuel to Bermuda, their financial stability and their supply cost.

“Belco must purchase fuel several months in advance of need to ensure reliable operations and to reduce as much as possible the purchase and delivery cost of its fuel.

“Our fuel procurement goal is to ensure the lowest cost and to also have fuel in reserve.”

US crude oil prices fell into negative territory this week.

Futures contracts expiring this month briefly plummeted as low as minus $37 a barrel, which meant, for the first time in history, producers were willing to pay buyers to take crude oil off their hands.

The reason for the extraordinary price slump was a collapse in demand due to the lockdowns in countries around the world.

International paralysis has affected everything from air travel and transport, to factories and offices, while at the same time oil supply has increased.

Many oil storage tank farms have now reached their capacity limit as a result.

An agreement this month by oil producing countries to cut world oil production by ten million barrels a day is not enough to halt the glut, as global demand has fallen by 30 million barrels a day.

Oil producers scrambled to sell oil futures contracts rather than be faced with the problem of finding somewhere to store the oil — hence the willingness to pay someone else to take it.

The US oil benchmark West Texas Intermediate, which had been trading at $50 a barrel earlier this year, went into negative territory on Monday and Tuesday.

It has since moved back into positive pricing at around $12 per barrel.

Another world oil price benchmark, Brent crude oil, saw its price dip to $18 per barrel.

Indications suggested that crude oil prices will remain at historic lows for some time as the prices for oil futures contracts, due to expire in June and July, are also tumbling.

Belco said that its Regulatory Authority-approved rate tariff, which became effective on January 1, was a lower rate than that paid by customers last year.

It said the fuel adjustment rate, set by the RA, was calculated quarterly and involved more than just the variable cost of fuel.

The rate also includes fixed duties, taxes and freight and handling charges which make up between 50 per cent and 65 per cent of the fuel adjustment cost.

Belco said those charges were fixed and did not alter as Belco's cost of fuel changed.

The company spokesman added: “Belco will continue to source the lowest cost, most reliable fuel to power the company's generators with the ultimate aim of reducing costs for our valued customers.”

Energy prices: history has shown that moves in the price of crude oil tend to be reflected in the fuel adjustment rate in Bermuda, although after a lag of a few months (File photograph)

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Published April 23, 2020 at 9:00 am (Updated April 23, 2020 at 7:33 am)

Oil price plunge may lead to lower Belco bills

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