Fuel industry opposes DACO order to freeze profit margins after oil price hike

The conflict between Russia and Ukraine will have an impact on many countries, including Porto Rico, which will see the price of fuel rise even further, threatening a possible economic recovery.

After the first Russian attacks against Ukraine yesterday morning, the price of crude oil started to rise and reached close to $100 a barrel. At the end of market trading, Texas Oil Intermediate (WTI) closed at $92.81.

To avoid speculation and maintain some stability in price fluctuations, the consumer department (DACO) has issued an order freezing the gross profit margins of wholesalers, distributors and retailers of gasoline, diesel and liquefied gas.

Order 2022-003 came into effect Thursday, February 24 at 11:30 a.m. and will be in effect until Monday, March 7, 2022. The ordinance establishes that no retailer may have a gross profit margin greater than 20 cents per gallon at retail, which is equivalent to 5,283 cents per liter for self-serve and 25 cents per gallon for gasoline sold at the detail. retailerequivalent to 6,604 cents per liter at the full service pump.

Gasoline retailers with a higher profit margin at the time of this order should reduce it. Those who fail to comply face fines of $10,000 for each violation.

However, the secretary of the DACO, Ethan Riverawarned that despite this profit freeze order, fuel prices will continue to rise in the coming days.

“The DACO is taking preventive measures to ensure that there are no excessive increases. There is no reason to be alarmed or to make hasty decisions. Yes, there will be increases in these products, but the DACO will ensure that they occur in an orderly fashion and do not exceed increases in the international market.said the secretary.

He assured that there is a sufficient amount of fuel stored in Puerto Rico, so there is no reason for consumers to be alarmed. In the case of regular gasoline, the average inventory is 65 days, as a bonus there are 60 days, there is diesel for 44 days and liquefied gas for 144 days.

All fuel wholesaler/distributor and retailer profit margins have been frozen at their current profit.

But only at the gasoline retail margin, the DACO has imposed a cap, which is 20 cents per gallon at self-serve pumps and 25 cents per gallon at full-service pumps. ).

Regular gasoline prices fluctuated between 94.7 and 97.7 cents per liter on Thursday. Meanwhile, the premium was over the dollar and diesel was between 89.7 and 93.7 cents.

For today, wholesalers should raise the selling price to retailers.

Retailers oppose DACO

Ezra Velezpresident of the Gasoline Retailers Association (ADG), disagrees with the DACO Secretary’s decision to require stations that operate with a profit above 20 cents per gallon to reduce it.

The fairest and most sensible thing that should have been done was to freeze the profit margin that everyone had at that time. They still see us, the retailers, as the bad guys. The secretary makes a change in the market. It’s very easy to say that, since there are few such retailers, we will sacrifice them, whether they are 10, 20 or 40,” said Vélez, who could not specify how many stations are operating. with a profit of more than 20 cents per gallon.

The head of the retailer said he requested a meeting with the DACO secretary to ask him to reconsider the order.

While, Carlos Crespoformer Chairman of the ADG, indicated that retailers whose profit exceeds 20 cents per gallon are those who sell few gallons. He estimated that these stations were selling less than 30,000 gallons per month, an amount well below the 60,000 to 70,000 gallons per month that stations in Puerto Rico generate on average..

Besides, Charles Decletfrom Gas of Santurceconsidered that it was not worth imposing a freeze on the liquefied gas sector, because, according to him, “competition in the gas industry is so strong that it is self-regulating”.

Currently, the price of a 100-pound gas cylinder is between $90 and $110 and is expected to continue to rise in the coming days. “This price is the highest we have seen in a long time and further increases are coming in March.”

Order 2022-003 is temporary in nature, but the DACO chief said he may extend it if the situation in international markets does not stabilize in the coming days.

The agency also monitors the evolution of the prices of around fifty basic necessities. Rivera has not ruled out ordering a price freeze if he perceives an aggressive and unwarranted hike in an item.

for the economist Jose Joaquin Villamilof the firm Technical studieswhat we can expect is that “these increases will accelerate in the coming weeks”, and said the rise will not only affect fuels such as oil and natural gas, but also the aluminum and steel, as we have seen for some time. weeks.

“Beyond the impact on prices, we can expect disruptions in supply chains in general and shortages of certain products. One of the consequences of the invasion of Ukraine is that “she revealed that the United States no longer has the influence it once had on global issues. The sanctions she has imposed on Russia are much less important since there is China – with which Russia has entered into several recent collaboration agreements – which represents an extraordinary market for Russian exports,” said Villamil, who indicated that natural gas destined for Europe will now be exported to China.

“Puerto Rico needs to be mindful of what’s happening in the world…focusing only on 100×35 and what’s happening in Washington, DC is not enough and can lead to serious errors in how we see our economic prospects,” he warned. the Economist.

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