Owing to an oil supply glut arising from the squabble among members of the Opec+ alliance of 23 oil-producing countries — notably Russia and Saudi Arabia — and a demand crunch brought on by the Covid-19 pandemic, the American oil-pricing benchmark West Texas Intermediate and the international benchmark Brent plunged to US$16 (S$23) and US$24 a barrel respectively in recent days, the lowest in decades.

Just six months ago, Brent and West Texas Intermediate were trading at around US$56 and US$62 a barrel respectively. With such a drastic decline, however, we have yet to see significant adjustments to petrol and diesel prices at kiosks. Pump prices here have reportedly fallen by up to five cents a litre or less than 3 per cent, compared with the steep drops in crude oil prices last week.

The major oil companies have often said that their pricing formula includes other non-crude-oil costs such as those for processing, manpower, land, taxes, foreign exchange, and other distribution costs. Shouldn’t crude oil prices be the highest cost component in the pricing formula? If so, then the recent sharp decline in crude oil prices ought to translate into a corresponding reduction in retail prices.

Would the oil firms be willing to provide their pricing formula for transparency? Otherwise, the public distrust will continue.

While these oil majors may wield oligopolistic pricing power, there should be more transparency in the pricing mechanism. These same firms were quick to raise pump prices or slash station discounts when crude oil prices rose. But when the reverse happens, there appears to be inertia to decrease prices.

Businesses consume petrol and diesel in their operations, and individuals spend a significant portion of their household income on vehicles and public transport. They should not be subject to lopsided cost increases when crude oil prices jump, and yet be deprived of the benefits of cheaper pump prices or lower transport costs when crude oil prices drop.

It is time the Competition and Consumer Commission of Singapore (CCCS), the Consumer Association of Singapore and other relevant agencies look into the pricing mechanism of oil companies.

CCCS should ensure that the oil companies do not practise price skimming, where firms charge a high initial price that is gradually lowered, or oligopolistic pricing, which are both detrimental to consumer interests. 

Even the Public Transport Council takes into account the Consumer Price Index and Energy Index in its Fare Regulation Framework. Such indices are also influenced by energy prices and electricity tariffs, which in turn are affected by crude oil prices.

Electricity tariffs have also been adjusted in line with fuel cost components over the years.

Perhaps the Energy Market Authority should take over the regulation of pump prices to ensure transparency.

If market imperfections result in undesirable outcomes for businesses or consumers, the authorities must intervene.

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