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Retail petrol prices based on refined product, not crude oil

petrol

TheMole
Written by TheMole

PUTRAJAYA, Feb 1 2017 : The Barisan Nasional Strategic Communications Team today issued the following statement to explain the rationale behind the latest fuel prices increase:

Malaysia’s retail petrol prices are based on refined product, and not crude oil. Unlike before, Malaysians now benefit when refined petrol prices drop too.

PKR Member of Parliament (MP) Datuk Seri Dr. Wan Azizah Wan Ismail and DAP MP Tony Pua have accused the government of having no basis for increasing the petrol price for the month of February.

They had pointed out that the crude oil price for January had dropped and that the Ringgit did not weaken compared to the previous month.

We would like to inform both these Members of Parliament, the other opposition leaders and their propagandists that Malaysians do not pump crude oil into their cars. The majority of Malaysians pump refined petrol in the form of RON95 or refined diesel.

As part of the transformation to move away from inefficient blanket subsidies where the rich had benefited more than the poor, to more direct targeted aid and assistance, Malaysia had joined the majority of the other countries in the world to move to a managed float system from Dec 1, 2014 to determine the price of retail petrol and diesel.

Our managed float system uses the average price of the refined product – not crude oil – for the previous month to determine the retail pump price for the next month. Specifically, Malaysia uses the Singapore Means of Platts (MOPS) pricing for petrol and diesel –  which is public information.

While global oil prices had increased in recent months due to an agreement to cut production by oil producing countries – which also benefits Malaysia, the price of refined oil products have increased further due to other reasons.

A check on the MOPS MOGAS 95 unleaded pricing will show that the average price for January 2017  had stabilized in a range of USD69 to USD70 per barrel and is materially higher than the average price in December 2016 where the price had steadily increased from USD62 at the beginning of the month to USD68 by December’s end.

It was widely reported over the past month that oil refineries in South East Asia had enjoyed higher pricing and margins due to an unusually higher than normal number of refineries around the world shutting down due to fires and major maintenance. This had reduced supply and increased the refineries’ margins and pricing – hence the higher MOGAS 95 prices.

YB Wan Azizah and YB Tony Pua are advised to better understand the economics and market reality of petrol prices instead of making baseless statements that are untrue – or worse – designed to intentionally mislead and incite Malaysians.

They and their fellow opposition leaders must remind themselves that Malaysians pump refined petrol – not crude oil – and that the refined petrol prices may differ from crude oil prices due to global supply and demand factors.

Knowing that it is a managed float system, it is ridiculous that opposition leaders blame the government when petrol prices increases due to global market prices increase but when petrol prices reduce, they claim this is due to global prices and gives no credit to the government.

It is like a monthly game that never ends and a game that opposition leaders do not seem to tire of playing.

While Malaysians will have reason to complain that that price of RON95 in February at RM2.30 per litre is higher than what we enjoyed over the past year, Malaysia’s petrol prices is still consistently the cheapest in South East Asia (except Brunei) and among the 15 cheapest among 180 countries in the world.

This is unusual as Malaysia is not a big producer and exporter of oil when compared to the other countries in the top 15 cheapest retail petrol list.

In ASEAN, our RM2.30 per litre price for February compares favorably to Indonesia (RM2.73), Thailand (RM4.10), the Philippines (RM3.72) and Singapore (RM6.56).

Malaysia’s RON95 price was also at RM2.30 per liter in October and November 2014. It is also interesting to note that in 2008, RON92 had reached RM2.62 per litre.

While a managed float would mean that Malaysians has to bear with higher petrol prices when global prices increased, this also means we had also benefited from prolonged period of low refined petrol prices over the past two years when it had reached as low as RM1.60 per litre.

This is unlike in the past before 2004 where Malaysians did not benefit from low global oil prices which had ranged from USD10 to USD20 per barrel as compared to USD55 to USD60 per barrel now as Malaysians were taxed 58.62 sen per litre for petrol and 19.64sen per litre for diesel for decades. These taxes were abolished only in the year 2004.

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TheMole

TheMole