Why petrol prices may not fall in tandem with oil prices

Demand for other types of oil and excess supply affect what drivers eventually pay for petrol at the pump. Other factors include petrol companies' operating costs, land costs, duties and taxes, discounts and rebates.
Demand for other types of oil and excess supply affect what drivers eventually pay for petrol at the pump. Other factors include petrol companies' operating costs, land costs, duties and taxes, discounts and rebates. ST PHOTO: NG SOR LUAN

Drivers may not always end up paying less for petrol when oil prices fall, as factors like demand for other types of oil and excess supply play a part, said Senior Parliamentary Secretary for Trade and Industry Tan Wu Meng in Parliament yesterday.

Mr Ang Wei Neng (Jurong GRC) had asked if major oil companies in Singapore displayed oligopolistic behaviour, and what the realistic selling price of the popular 95-octane petrol was in the light of crude oil prices being zero or less.

Mr Ang also asked if the Ministry of Trade and Industry will mandate that oil companies publish their lowest petrol and diesel prices after their best discounts.

While a fall in oil prices "generally results in a drop in retail petrol price", this may not always happen, owing to multiple factors, Dr Tan said.

He explained that a quantity of oil is refined into different products, with the quantity of each product more or less fixed.

"If there is a change in demand for one of the refined products, it can affect the supply and demand situation for the others," he said.

Plunging demand for aviation fuel, for example, would result in refineries cutting back on crude oil refinement, which, in turn, reduces the production of other refined products, including retail petrol.

Such a move would push up prices of oil products like petrol, despite no change in underlying demand.

Other factors include petrol companies' operating costs, land costs, duties and taxes, as well as discounts and rebates, Dr Tan said.

A 2017 study by the then Competition Commission of Singapore found that although major petrol retailers "regularly monitor and respond to each other's prices and promotions", it also found that prices "do not always move in tandem among the petrol retailers".

"There was no observable pricing pattern, such as a clear price leader, for either price increases or price decreases," Dr Tan said.

The study revealed that between January 2010 and December 2016, for every 10-cent change in petrol prices, both upwards and downwards, the listed retail petrol price changed by an average of seven cents.

The study also showed that petrol prices took an average of eight days to rise and six days to fall.

"If you look at the empirical evidence, it does not suggest listed retail petrol prices adjust downwards more slowly, or by a smaller amount, compared to upward price adjustments," Dr Tan said.

The Competition and Consumer Commission of Singapore is monitoring the situation closely, and will take enforcement action should evidence of anti-competitive activity surface, he said.

On whether "white pump" fuel kiosks - bowsers maintained by companies for their own vehicle fleets - could be opened to motorists, Dr Tan said that while such companies are currently not allowed to sell to the public, the ministry was prepared to carefully consider such suggestions.

Dr Tan urged consumers to use the popular petrol price comparison site Fuel Kaki, run by the Consumers Association of Singapore, to find out what they will eventually pay at the pump.

The site compares fuel prices across different petrol retailers after discounts and rebates.

"Well-informed consumers are a key deterrent against unreasonable pricing decisions," Dr Tan said.

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A version of this article appeared in the print edition of The Straits Times on May 27, 2020, with the headline Why petrol prices may not fall in tandem with oil prices. Subscribe