LAUNCESTON, Australia (Reuters) - Motorists and transport operators in many Asian countries may be feeling either aggrieved, or puzzled, as to why the dramatic slump in crude and refinery prices for fuels hasn’t been fully reflected in the price they pay at the pump.
The commercial transport operators and private motorists are at the end of the crude oil and refined products supply chain and are often ignored when it comes to market analysis about the collapse in prices.
Perhaps this is because they are largely price-takers, with little choice but to accept what fuel retailers are charging and are reliant on either official regulators or often inefficient market forces to set what is a reasonable price.
Brent crude futures have dropped 54% from their peak this year, of $71.75 a barrel on Jan. 8, to the close on Wednesday of $32.84, slammed by the substantial drop in demand as the spread of the new coronavirus around the world forces much of the global economy into some form of lockdown.
The decline in crude oil prices has flowed through to the Singapore price of refined fuels, with 92-octane gasoline, dropping a massive 74% from its peak this year of $74.90 a barrel on Jan. 6 to just $19.55 on Wednesday.
The decline in gasoil, the refined fuel that is the base of diesel and jet kerosene, hasn’t been quite as dramatic, but the Singapore price is down 55% from its high of $82.55 a barrel on Jan. 6 to $37.51 on Wednesday.
But these sharp drops in fuel prices have not quite shown up in some of Asia’s major markets.
For instance, in India the retail price of diesel in the capital, New Delhi, has only dropped 10% in local currency terms from the peak in 2020 of 69.23 rupees (91.2 U.S. cents) a litre on Jan. 11 to 62.29 rupees on Wednesday.
The price of gasoline in New Delhi has dropped even less, falling only 8.5% from the Jan. 11 high to Wednesday’s price of 69.59 rupees a litre.
In China, the drop has been somewhat bigger, with diesel falling 23% from its high this year of 6.64 yuan (93.9 U.S. cents) a litre on Jan. 27 to 5.11 yuan on April 6, while retail gasoline in China has slid 21% over the same period.
In Australia, where retail prices are normally closely aligned with the Singapore refinery price, diesel has dropped 11% from its year high of 150.6 cents (93.7 U.S. cents) a litre in the week of Jan. 19 to 134.1 cents in the week to April 5.
Australian national average gasoline prices have fallen 22% over the same time period to 120.5 cents a litre.
Australian fuel prices are, similar to other countries, subject to taxes, with the current excise duty set at 43.2 cents a litre.
Excluding this tax from the calculation shows that the price of diesel is down 15.2% and that for gasoline is 30% weaker.
Even adjusting for the impact of taxation, it’s clear that the crash in gasoline and diesel prices at refineries in Asia hasn’t fed through to consumers and transport businesses.
This means that consumers in many Asian countries are paying more for goods than they currently should, as the cost of transport hasn’t declined by as much as it should.
There is generally a lag between a drop in ex-refinery fuel prices and those at a retail level, given petrol station operators have to work through onsite stocks bought at higher prices.
But this lag should largely be over, and still end users of fuels have yet to benefit from the drop in prices.
While more rapidly falling prices may not boost demand that much given the partial lockdowns in many Asian countries, including India, Singapore, Thailand, Malaysia and Australia, it can hardly be an economic positive to have retail fuel prices higher than they need to be.
It also doesn’t seem that refiners are to blame, with the profit from processing a barrel of Dubai crude at a Singapore refinery falling to a negative 36 U.S. cents a barrel on Thursday, well below the moving 365-day average of a profit of $3.10.
In Australia, it looks mainly like fuel retailers have been holding onto the extra margin, with research from CommSec, the brokerage arm of Commonwealth Bank, showing that the smoothed gross retail margin, which is a two-month rolling average, rose to a record high of 21.35 Australian cents a litre in the week to April 5, some 60% higher than the 24-month average.
While fuel retailers may well be tempted to try to build a buffer for the hard economic times created by the coronavirus, it would probably be more useful for them to drop margins to more usual levels, thereby putting cash into the hands of hard-pressed motorists and transport companies.
Editing by Robert Birsel