Ever wondered how the price of fuel is set at the pumps? We explain
Explainer: How petrol prices are set in the UAE
Since August 2015, the retail prices of petrol and diesel at the pumps in the UAE have been set on a monthly basis according to the Retail Pricing Regulations implemented by the Retail Pricing Committee, chaired by the Ministry of Energy.
According to the prospectus released ahead of Adnoc Distribution’s initial public offering on the Abu Dhabi stock market next month, fuel prices are set in relation to global refined petroleum product price benchmarks compiled by S&P Global Platts.
Here's a quick guide to how prices are calculated each month:
- Ministry of Energy's Retail Pricing Committee refers to benchmarks compiled by Platts at the end of each month
- The pricing committee adds a margin for transportation and operating costs
- Prices are implemented by fuel retailers at the beginning of each month
Who is Platts?
Platts is a provider of energy and commodities information and a source of price assessments for the physical market of crude and other products like gasoline. It is more than a hundred years old.
Jonty Rushforth, head of oil pricing at Platts, says that in general, benchmarks serve the purpose of providing stability and robustness of pricing and Platts' benchmarks reflect pricing in wholesale international markets. Typically, he says, gasoline prices are benchmarked against the most liquid markets such as Singapore and for diesel it is usually North West Europe.
These prices are then used as a reference point for agreeing prices for both commercial contracts and in local retail markets.
Transport and operating margins
The Adnoc Distribution prospectus says that the retail prices for petrol and diesel in the UAE also include a regulated margin set by the energy ministry to compensate fuel retailers for transportation costs and other operating expenses.
Read more: UAE petrol prices to increase for December
Should the price that Adnoc Distribution pays for fuel increase, “we will only be able to pass on such increases to our customers if authorised to do so by the Retail Pricing Committee”, the prospectus says.
How has the retail price of fuel fared since regulated pricing?
December's prices rose between five and six per cent on November's prices. Here's a graphic charting petrol and diesel prices in the UAE since August 2015.