Why retail prices of petroleum products cannot follow crude oil rates

Why retail prices of petroleum products cannot follow crude oil rates

PETALING JAYA - There has been a sharp drop in crude oil prices - at least 66 per cent over the past 18 months - but retail prices of petroleum products have not come down in tandem.

Treasury secretary-general Tan Sri Dr Mohd Irwan Serigar Abdullah said this was because the price of petroleum products at retail level was not directly related to crude oil prices.

He said the cost of retail price calculation for refined oil products was based on the Automatic Pricing Mechanism (APM).

"The cost of refined products for RON95 only decreased by 22 per cent from US$73 (S$105) per barrel to US$57 for the past one year.

"The slower pace of reduction in the retail price is also compounded by the depreciation of the ringgit against the greenback.

"The average exchange rate against the US dollar depreciated by 23 per cent from December 2014 as compared with last month," he said in a statement.

Dr Mohd Irwan said as Malaysian crude oil was of a higher quality and largely exported, oil companies in the coun­try partly imported crude oil for their refineries, adding that com­­panies without refineries im­­por­­ted almost all their refined pro­ducts.

"As such, the exchange rate factor plays an important role in the determination of final retail price of the petroleum products.

"In view of this, the proposed new pricing based on the actual production cost of Malaysian oil refineries denominated in ringgit is not feasible," he said.

Dr Mohd Irwan said even within the existing pricing, the retail price of RON95 had decreased seven times and diesel by five times since the implementation of the managed float system based on APM.

He said compared with prices of RON95 for December 2014, the retail price of RON95 this month had decreased by 18 per cent while retail prices of diesel dropped by 28 per cent during the same period.

"These reductions are in line with quantum of reduction in refined product costs and factoring the exchange rates.

"The latest retail price per litre of RON95 is RM1.85, RON97 is RM2.25 (S$0.70) and diesel at RM1.60, are much lower than in some countries in the region," he said.

He said in the past when crude oil prices were high, the Government normally set retail prices below actual prices by providing subsidies.

In 2014, the amount of petroleum subsidies provided by the Govern­ment was RM17.7bil.

With the introduction of Goods and Services Tax, a tax relief for the retail sale of RON95 and diesel was provided to consumers and selected sectors.

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