Caltex - Petrol Pricing Plain Facts : Australia follows Singapore petrol prices

This article belongs to the Singapore inflation watch story arc.

google.com -> caltex.com.au :

I found this rather informational page recently while looking for information on Singapore petrol prices, and ended up reading about Australia petrol prices as well. Some excerpts :

* About 40% of the cost of an average tank of petrol is tax (Excise is 38 cents per litre and GST is included in the total price).

* The landed price of crude oil does not determine the retail price of petrol in Australia - rather, the price of petrol in Singapore forms the basis of the price of petrol in Australia. Pump prices closely follow international prices with a lag of one to two weeks.

* Pump price responses to international prices are symmetrical ie they are not "quick to rise and slow to fall", instead they are "slow to rise" and "slow to fall".

* Retail prices do not respond exactly to international prices (MOPS95) on short time scales (up to several weeks).

* The supermarket alliances operate the largest number of service stations that are aggressive discounters. In most markets, non-major oil company brands play a minor role.

* Petrol prices don't all increase at the same time and Caltex is not aware of any collusion in pricing - only fierce competition that benefits consumers.

- The petrol pricing structure seems quite similar between Singapore and Australia, the only differences being currency (AUD/SGD=1.31 at the point of writing), and taxation (Singapore charges around SGD 40 cents per litre, Australia charges AUD 38 cents; Singapore has 7% GST, Australia has 10% GST).

Notable points include my empirical observation of a 1-2 week lag between crude oil price movements and petrol pump price adjustments. I had been working on the assumption that this is the length of time it takes to "flush" the supply chain, so to speak - which turns out to be correct. This is especially noticeable when some of we are watching NYMEX crude oil prices setting new records on livequotes and wondering why petrol prices have not changed yet.

Another notable point brought up is the reason for petrol prices of different brands often moving together, whether on the upside or on the downside, and it has more often been up than down in recent months. It has often been the point of contention and ill will toward the oil companies, with the oil companies denying that they are in a cartel, many members of the public insisting that they are, and the government standing to one side and taking the stance that government tax collection does not benefit from rising prices because the taxation is fixed in terms of cents per litre, instead of being a percentage of the price.

One last thing to note. From the graphic above, notice how primary product costs (upstream from crude oil to refined gasoline product) and taxation take up the major chunk of the petrol price - and how the margins at the downstream or retailing side can only be described as razor-thin.

For the benefit of new readers and the uninitiated, this is the reason why BP abandoned their petrol stations in Singapore and sold them all off to SPC some years back. And it is also the reason why Shell outsourced their petrol retail operations to 7-11 and ExxonMobil (of the Esso and formerly Mobil brand in Singapore) likewise handed over daily petrol station operations to the national supermarket chain, NTUC Fairprice. The profits are mostly at the upstream side, not the downstream side, hence supermarket operators were deemed to be more suitable as they are used to dealing with high volume, low margin product.

NYMEX crude oil falls $10 on deep recession fears amidst stock market meltdown

bloomberg.com, biz.yahoo.com :

NYMEX crude oil prices fell more than $10 a barrel to as low as $135.92 from session highs on concern that a slower US economy will curtail demand for oil and gasoline. Earlier, oil rose to $146.73 as the dollar fell to an all-time low of $1.6038 per euro. Crude oil futures reached a record $147.27 per barrel on 11 Jul 2008. Fed chairman Ben Bernanke said risks to US growth and inflation have increased, while US stocks tumbled, and the S&P 500 index reached its lowest since 2005. "We're getting to the point where the market's looking at an increasing likelihood of a deep recession," said James Ritterbusch, president of Ritterbusch & Associates.

- The complete meltdown of Fannie Mae and Freddie Mac could be the trigger event that sets everything off. The markets are going absolutely crazy right now as I write this, with multiple billions of shares changing hands frantically, and all 3 major US indexes exploring the depths of bear market territory. Just the day before, I sent off to friends via email and IM the "world is going to hell" edition of my blog posts on Indonesia's natural gas situation, their rolling blackouts, Matt Simmons going doomer, and our dear Fannie and Freddie. And I was going around telling people exactly that. Trillion-dollar meltdown. End of the world.

Now, with the stock meltdown going on, and oil down over $10, as peakoilers, here are some questions that we might want to ask :

- Have the supply and demand fundamentals really changed?
- Is US demand going to drop faster than rising demand in emerging economies?
- Are Export Land Model countries such as Indonesia going to suddenly begin exporting more again?
- Is demand destruction finally kicking in?
- Is demand falling faster than shrinking supply?

As far as I am concerned, the answer to all the above is NO. Barring a miracle, the discovery of another five Ghawars or North Seas, or aliens landing on the White House lawn, the supply situation certainly is not going to change. Peak oil is peak oil. The supply situation is worsening, not getting better. Not with giant oil fields such as Cantarell in Mexico depleting 18% per year, and after a few more years like this, there won't be very much left.

As for the demand situation, it has been said that for every 1 barrel of US or in fact Western demand reduction, the demand in the emerging economies in the rest of the world is going up 14 barrels. So, demand will continue to increase unless US demand also falls by the same 14 barrels, cancelling out the rest of the world. If so, that would make the Great Depression look like a picnic. Even then, in the depths of the 1920's Depression, energy usage only went down by around 8%.

For all we know, this could well be the start of the Second Great Depression, it could be worldwide in scope, *and* it could lead to drastically lower oil consumption globally. But, long before the panic really starts on that front, there is one last financial Weapon of Mass Destruction left to be deployed - global hyperinflation. If it is going to turn out that way, you will want to be in tangible assets such as commodities, physical goods, food, water and shelter. Paper assets will be valued for their energy content - as fuel for burning. And if it really does turn out this way, let it not be said that nobody saw this coming.