Wednesday July 16, 2008

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.

See also :

1. Singapore petrol prices increase second time in 10 days, up 14 times in past year
2. Singapore petrol prices lowered 4 cents after crude oil drop
3. Singapore petrol prices drop 4 cents for third time in 2 weeks

(2008-07-16 16:59:07 SGT) [Energy] Permalink

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