Crude oil plunged 7% yesterday and has now corrected almost 30% since early October. Since I'm not an economist, I won't delve into the macro specifics of the correction. Instead, I wonder why is it that our petrol retail pump price is still hovering near all-time high?
WTI crude price is now around US$56/barrel, more than 60% off the all-time high of US$145 in July 2008. In contrast, the SPC Premium 95 unleaded gasoline pump price (taken from Bloomberg) was at a record high of S$2.40/litre just last month, even higher than the 2008 pump prices.
Looking at the chart above, the difference between the SPC premium 95 pump price and crude oil (after converting into SGD/litre) seems to be gradually increasing since 2005. Part of the reason is probably because Singapore charges an excise duty on petroleum, and has even recently hiked the excise tax in 2015. A bit of background history on the petrol excise tax - premium petrol excise duty used to be 40% of pump price without GST or $0.50 per litre (whichever is higher) but was lowered to 35% of pump price without GST or $0.44 per litre (whichever is higher) in the 2001 off-budget measures. In the 2003 budget, the petrol excise duty was fixed at a specific rate ($0.44 per litre) so as to reduce final price fluctuation with oil prices. In the 2015 budget, premium petrol excise duty was raised by 20 cents from $0.44 per litre to $0.64 per litre.
Stripping away the excise tax however, the difference between pre-tax pump price and crude oil is still rising since 2005, although the gap has been consolidating since the excise tax hike in February 2015 (vs the first chart where the gap continues to widen).
So is it a case where fuel consumers in Singapore are squeezed by the oligopolistic nature of the petroleum industry? I apply the same calculations to Australia and found out that the trend is pretty much similar.
Turns out, complaining about sticky petrol prices is not exclusive to Singapore. People in USA, UK, India are all questioning why petrol prices don't fall as fast or hard as crude oil prices. So why do petrol prices rise like a rocket, but fall like a feather?
Other than government duties and the cost of crude oil, there is also the refinery margin and the retail distribution's cost. Refiners have a high level of fixed cost to run while retailers' cost may be rising as well due to higher rents, labor costs, etc over the years. As with most other consumer products, inflation rears its ugly head again, and without much transparency and accountability. Perhaps the solution would be to switch from your traditional ICE (internal combustion engine) vehicle, to an EV (electric vehicle) where cost of charging would be fully transparent. It's just too bad that our government doesn't seem to welcome EVs at the moment but hopefully that will all change in 2021 when Dyson rolls off its first batch of EVs from its Singapore plant!
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