To be sure, petrol retailers in Singapore do not use crude oil prices in their cost accounting and pricing decisions for pump petrol. The Mean of Platts Singapore (MOPS) prices – the wholesale price of refined oil published by markets research firm S&P Global Platts – is used instead.
Other considerations that go into the pricing decisions of retailers include duties, the cost of storage, land and labour, as well as currency differences. There is also typically a “lag effect” given how pump prices are based on older inventories bought at either higher or lower prices depending on the market situation then.
But the lag time between global oil price movements and what consumers are paying at the pump has been much shorter this time.
“What is perhaps more unique about the current set of events and price movements in recent weeks include that we are still in the midst of a global energy crunch and that there is a scale and sense of permanence to the changes in demand for oil and gas from Russia that will coincide with a re-calibration of global supply chains,” said Dr David Broadstock, senior research fellow and head of the energy economics division at the National University of Singapore’s (NUS) Energy Studies Institute.
CIMB Private Bank economist Song Seng Wun said: “The pass-through effect is much faster this time because the spike in global oil prices has been so abrupt and so sharp over a short period of time. Also from the refineries’ standpoint, it doesn’t look like the situation is going to dissipate anytime soon.
“Even if the war in Ukraine stops, to what extent will the sanctions remain in place? Russia and Ukraine are not unimportant in the world of resources and energy, so the worry goes beyond the current crisis and into the far longer term.”
At the same time, other costs are going up. For one, petrol retailers face the pressure of rising labour cost, just like any other business in Singapore.
“Existing pressure points, be it labour or land, will never go away,” Mr Song added. “What is far more serious is that the cost of moving goods have become more expensive because of the conflict in Eastern Europe.”
Refineries and oil importers are paying more for freight rates as global supply chains brace for even more disruptions, as well as higher insurance premiums for their goods during transit, he explained.
All this means that the making of petrol or diesel is set to become more expensive and the additional costs will likely be passed on to consumers.
While there is confidence that other members of the global oil and gas supply chain are willing to expand production to make up for the supply shortfall from Russia, Dr Broadstock said the market remains in the middle of a volatile price period and has not seen “convincing signals of … a return to sub-US$100 prices for oil”.
“In other words, we are still seeing the market dance around the fringe of high prices – a ballet of sorts between high, higher and highest,” he added.
“These are very likely powerful signals to petrol retailers and would presumably sustain their expectation that fuel will need to be sold at a higher price.”
“WE JUST HAVE TO TRY TO BE OPTIMISTIC”: TAXI DRIVER
Motorists are already feeling the pinch, especially taxi drivers and private-hire car drivers who clock long hours on the road.
Mr Chan KS, a taxi driver with ComfortDelGro, said he used to spend about S$15 a day on diesel. That has now gone up to S$25, even though he fills up his tank at kiosks operated by ComfortDelGro which offers discounted rates.
“This time last year we were paying about S$1, but now it’s S$1.65. The jump has been drastic and unfortunately, I foresee it will go higher to maybe S$2 if the conflict in Ukraine is going to be prolonged.”