November 26, 2018 / 11:01 AM / 16 days ago

Commentary: Asia's motorists aren't getting the full joy of crude's slump

LAUNCESTON, Australia (Reuters) - U.S. 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.

Motorists from Malaysia stop at a traffic light after leaving the causeway customs during morning rush hour in Singapore June 16, 2017. REUTERS/Edgar Su

Since its 2018 closing peak of $86.29 a barrel on Oct. 3, Brent crude has tumbled 32 percent to end at $58.50 on Nov. 23.

This decline has been matched by the price of 92-octane gasoline in Singapore, which was down by 33 percent from its peak of $92.65 a barrel on Oct. 2 to $62.30 on Nov. 23.

However, the retail price of gasoline 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 ($1.07) a litre on Nov. 24, according to price monitoring website mypetrolprice.com.

This is down 10 percent from the peak of 84.06 rupees on Oct. 4, illustrating that the sharp decline in crude and ex-refinery gasoline 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 gasoline price has dropped by about 14.1 percent, from a 2018 peak of A$1.605 ($1.16) a litre in the week to Oct. 28 to A$1.378 in the week to Nov. 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 gasoline falling 5.4 percent to 7.74 yuan ($1.12) a litre in the week ended Nov. 19, according to data on the website globalpetrolprices.com.

It’s likely that retail gasoline 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.

REFINERS’ DILEMMA

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 Nov. 23.

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

With profits from gasoline 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 gasoline 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 gasoline 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 Nov. 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 Nov. 23, down 6.7 percent from the recent peak of 75.74 rupees on Oct. 16.

The national average diesel price in Australia was A$1.595 in the week to Nov. 25, down only 3.2 percent from the recent high of A$1.649 in the week to Oct. 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 gasoline and diesel in major Asian countries, a demand-led tightening of the market may remain elusive.

The opinions expressed here are those of the author, a columnist for Reuters. 

Editing by Joseph Radford

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