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Abu Dhabi, UAETuesday 11 December 2018

Despite fall in crude prices, Asian motorists yet to see much benefit

The retail price of petrol in major Asian countries has fallen by significantly smaller margins than the decline in the price of oil

Opec has long argued that fuel taxes add the real burden for consumers at the pump. Reuters
Opec has long argued that fuel taxes add the real burden for consumers at the pump. Reuters

US President Donald Trump has boasted that falling crude prices are like a tax cut for the world, however, motorists in much of Asia have yet to pocket substantial savings from the recent rout in oil markets.

Since its 2018 closing peak of $86.29 a barrel on October 3, Brent crude has tumbled about 30 per cent.

This decline has been matched by the price of 92-octane petrol in Singapore, which was down by 33 per cent from its peak of $92.65 a barrel on October 2 to $62.30 on November 23.

However, the retail price of petrol in major Asian countries has fallen by significantly smaller margins.

The pump price of gasoline in India's capital New Delhi was 76.66 rupees (Dh3.92) a litre on November 24, according to price monitoring website mypetrolprice.com.

This is down 10 per cent from the peak of 84.06 rupees on October 4, illustrating that the sharp decline in crude and ex-refinery petrol prices has yet to filter through to consumers.

However, the above calculation doesn't factor in the impact of fuel taxes, which in India are about one-third of the retail price.

Excluding taxes from the price reveals a slightly larger 13.2 percent drop in the untaxed component of India's gasoline price from the October peak until Nov. 24.

Australia's national average petrol price has dropped by about 14.1 per cent, from a 2018 peak of A$1.605 (Dh4.26) a litre in the week to October 28 to A$1.378 in the week to November 25, according to data from the Australian Institute of Petroleum.

Australia's fuel taxes are about the same percentage as those in India, meaning there has been a slightly larger drop in the untaxed component of the fuel price, but still nothing close to the plunge in Brent.

China, which has a managed system for retail fuel prices, has seen a lower drop than India and Australia, with petrol falling 5.4 per cent to 7.74 yuan (Dh4.11) a litre in the week ended November 19, according to data on the website globalpetrolprices.com.

It's likely that retail petrol prices will drop in those countries in coming weeks, but it would be unlikely that they fall by as much as motorists might hope for, given the slump in crude.

Asian refiners are already struggling to make any money producing gasoline, with the profit margin, or crack, for making a barrel of 92-octane from Brent crude in Singapore at 32 cents on November 23.

This is up from a loss of $1.17 a barrel on November 8, which was the weakest crack in seven years, but still well below the $11.55 peak for 2018, reached on August 15.

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Read more:

UAE fuel prices for November: petrol falls but diesel costs rise

Slide in oil prices unlikely to last

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With profits from petrol currently tenuous, the scope for refiners to lower prices further is likely constrained.

In some ways it's a double-edged sword for the region's refiners, as they can lower petrol prices and make a loss in the hope of boosting demand in order to remove a surplus of the fuel.

Asian refiners are also in a quandary over strong margins for middle distillates, such as diesel, which encourage them to run their plants at high rates, even though this also ensures they produce more petrol than the market is demanding.

The profit margin for producing a barrel of gasoil, the base for diesel and jet fuel, from Dubai crude in Singapore was $15.50 in early trade on Monday, down from the 2018 peak of $17.97 on November 15, but well above the low of $12.12 from June 27.

Given the strong demand for diesel and robust refinery profits, it's no surprise that the retail price in India and Australia has failed to reflect the recent decline in crude.

Diesel in New Delhi was 70.65 rupees a litre on November 23, down 6.7 per cent from the recent peak of 75.74 rupees on October 16.

The national average diesel price in Australia was A$1.595 in the week to November 25, down only 3.2 per cent from the recent high of A$1.649 in the week to October 28.

While much of the focus in crude markets has been on the supply side, and the rapid switch from fears of tightness to oversupply, the demand side of the equation shouldn't be ignored.

Probably the best method for producers, traders and refiners of clearing oversupply in crude markets is to have demand gain to clear the surplus.

However, given the modest declines in retail prices for petrol and diesel in major Asian countries, a demand-led tightening of the market may remain elusive.