Petrol prices in Singapore and failure of the market mechanism

Petrol prices in Singapore are very peculiar. In fact it wouldn't even be wrong to say that petrol price in Singapore is very weird, given the way the prices seem to move in tandem. What has irked some drivers though is the fuel price mechanism. When crude oil was falling recently (a 41% fall in prices in fact), pump prices fell by 15% between July to December 2014. Our minister for trade and industry, Mr Lim said and I quote below;

Here's another article basically saying the same thing.

Let us not fool ourselves, given the many times price increases have been attributed to the rise in crude oil prices, done so no less by the petroleum companies themselves.

It is not just the percentage of change seen in petrol prices but the pace at which they change. When crude oil was falling, one of the reasons presented to us was that the petroleum companies practiced hedging which is why consumers were not seeing the full effect of the fall in petroleum prices. Over the last few days though, crude oil shot up and it was no surprise that pump prices were revised almost overnight to reflect the higher crude oil prices. Hedging, after all, should also protect us from sudden jumps in crude oil prices or our petroleum companies so daft that they are hedging when prices are high and refusing to hedge when prices are low?

This is an untenable situation and as the population becomes more educated, such 'crude' attempts to mask what is simple price-gouging must no longer be acceptable. There must be greater transparency in how petrol prices are arrived at.

Having said that though, Singaporeans are not the only ones to suffer from the recent rise in crude oil prices - Motorists in New Zealand and Australia were similarly greeted with a rise in pump prices.

Whilst we are talking about Australia. There is an illuminating article about the Australian fuel market. Why should it concern you? Because, Singapore's price of unleaded petrol is apparently a key pricing indicator for Australian prices.Even more importantly, the Australian price of petrol = the Singapore price of petrol (their purchase price) + shipping costs + Australian taxes (38 cents per litre + 10% GST). From that little nugget and the chart of information it can be discerned that Singapore has been selling petrol to Australia at a price range of AUD$0.70 cents in Jan 2013 to AUD$0.40 in Jan 2015.

Even bearing in mind that the Australian currency had an excellent run in that time, you would be expecting the Australians to be paying prices similar to Singaporeans right? Wrong. This little chart here shows you the prices Australians have been been paying recently. Let us pick out Brisbane as an example because it has the highest price out of all the capital cities at AUD$1.288. Google tells me that 1 AUD$ is equivalent to SGD$1.05, which translates to a price of SGD$1.36. Now tell me, dear fellow Singaporeans, when was the last time you paid $1.36 for petrol? Current price information pulled from Shell Singapore's website (as of 7th Feb 2015) shows a nett price of $1.8.

If you consider that only a few weeks ago, some Australians were paying AUD$0.997 (SGD$1.05) for a litre of petrol, I think it strikes home the disparity in the way our petrol is being priced.

Any logical person after all would assume that the Australians who are importing some petrol from Singapore and who have a longer distance to transport petrol from port to pumps would be paying a higher price but apparently it's not so. Is the distance from Jurong Island to our pumps so fraught with danger that there is some special tax pushing the price up?

Is there even any reason, other than downright profiteering that sees Singaporeans paying for petrol at 4 times over the price that we are exporting it to other countries? An oft cited reason has been rising land costs keeping petrol prices at a high premium in Singapore. If that is the case, this must be something that must be looked at by the Government.

To summarize, in June 2014, a barrel of oil cost S$150, price of petrol (95) was $2.28. Recently a barrel of oil cost S$78.20, price of petrol (95) is $1.8. A 47.8% reduction in crude oil prices has been badly reflected in a 21% reduction in petrol prices.