Amigoe: Why Price Fixing Does not Work; Texaco gas stations in Aruba closed due to expensive fuel

First the disappearance of Natalee Holloway affecting tourism and the Aruba economy and now high cost of fuel and shortages. According to Amigoe, “Barlock Caribbean Oil stops with the delivery of gas and related products to the Texaco-gas stations till further notice.” The reason? Aruban governmental price fixing.

ARUBA — Barlock Caribbean Oil stops with the delivery of gas and related products to the Texaco-gas stations till further notice. These gas stations will have to close their business. The cost price is at this moment higher than the maximum allowable price for fuel in Aruba. “We loose too much money”, says director Raymundo Barros.

Barlock supplies Texaco with fuel. The price at the pump cannot be higher than the allowable selling price set by the government. This price gets adjusted on a monthly basis, while the oil prices on the world market continue to rise. The gap between the maximum price that Texaco is allowed to charge the consumer and the price that Barlock charges Texaco has become big.

This is a quick economics lesson as to why supply & demand works. Although supply and demand pricing does not make everyone happy, it at least does not shut off the supply of gas all together. In Aruba, the gas prices are dictated by the government. Unless they artificially increase the price in which gas can be sold, businesses can no longer provide a service as they literally are losing money per every liter pumped.

The gap between the maximum price that Texaco is allowed to charge the consumer and the price that Barlock charges Texaco has become big. “Too big; we have to deliver under the cost price if we want to sell our product. That’s no longer doable.” Barlock has therefore decided to stop delivering fuel till further notice. The government must first allow the fuel to be sold for a higher price. “As long as they don’t, we do not deliver fuel.”

This means for the motorist that in a few days, they can no longer buy gas at the Texaco stations. Barros cannot judge whether competitor Valero’s reaction will be the same. “Valero might possibly continue to deliver against loss-making prices, but for how long? They will also stop some day.”

Just one more issue to deal with for an island with an economy based on tourism. Tourist on vacation having to deal with odd/even days or worse yet, no supply of fuel at all.

Full article from Amigoe; May 3, 2006: Texaco gas stations closed due to expensive fuel

ARUBA — Barlock Caribbean Oil stops with the delivery of gas and related products to the Texaco-gas stations till further notice. These gas stations will have to close their business. The cost price is at this moment higher than the maximum allowable price for fuel in Aruba. “We loose too much money”, says director Raymundo Barros.

Barlock supplies Texaco with fuel. The price at the pump cannot be higher than the allowable selling price set by the government. This price gets adjusted on a monthly basis, while the oil prices on the world market continue to rise. The gap between the maximum price that Texaco is allowed to charge the consumer and the price that Barlock charges Texaco has become big. “Too big; we have to deliver under the cost price if we want to sell our product. That’s no longer doable.” Barlock has therefore decided to stop delivering fuel till further notice. The government must first allow the fuel to be sold for a higher price. “As long as they don’t, we do not deliver fuel.”

This means for the motorist that in a few days, they can no longer buy gas at the Texaco stations. Barros cannot judge whether competitor Valero’s reaction will be the same. “Valero might possibly continue to deliver against loss-making prices, but for how long? They will also stop some day.”

The government of Aruba maintains a price structure that does not allow the fuel prices to ad hoc increase. This can only be done once a month. The next price increase can be expected on May 10th. Five years ago, Barlock paid 500.000 dollars for a full ship, which was enough to supply Aruba of fuel for one whole month. The same supply costs now 2 million dollars. In the past, Barlock solved this by bringing a ship to Aruba every other week and unload 50 percent of the fuel. However, a bi-weekly supply is a problem for the gas stations and other companies that have to do with the fuel supply. It runs out.

Valero has decided to continue supplying the gas stations for the time being. Since last weekend, Valero has also been supplying the Texaco gas station at Seroe Blanco. Valero-spokesperson David Smith explained that Valero is a very big company with huge oil supply; this way the price increase can be set off easier. He assumes that the Valero-gas stations will continue to supply fuel.