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What makes up the price of fuel?
Learn about what goes into your Shell fuel price as we break it down.
Understanding pump prices in Singapore
In July 2005, Shell launched its new simplified and transparent pricing proposition at all our retail stations. We believe in simplifying our offer for customers and being transparent in our communications. Shell's decision to move to nett price board has been well-received by members of the public.
Pump prices are of great concern to many Singapore drivers and non-drivers, and particularly when oil prices have been at historical high levels. This section on pump prices is part of Shell's commitment to provide greater transparency on this subject. This information would allow the reader to gain a general understanding of some of the key factors that influences pump prices (petrol and diesel) and an appreciation of the cost of car ownership here in Singapore.
Key Factors Affecting the Price of Fuel
The price you pay at the pump for your fuel is made up of a number of components. Apart from crude oil prices, internationally-traded refined product prices are affected by a range of regional, macroeconomic, and geopolitical factors, from staff costs at your local service station to the crude oil price on the open market.
1. Increasing demand for oil products especially in the US, China and India
As China's economy has expanded, the demand for oil products has increased exponentially. Likewise India's (blue line) rapid industrialization has fueled increased demand for petrol and diesel. The United States of America (US) is another region with a huge and growing demand for oil products.
Stronger-than-expected demand (especially in China and India) is contributing to higher prices.
2. Refineries are running at nearly 100% capacity.
As demand for oil products has increased, refineries worldwide are running at nearly full capacity to try and meet the demand. Due to the huge capex requirement to set up and run refineries, it has not been possible for more refineries to come online soon enough to sufficiently cover the demand for end products.
Additionally, legislative changes in fuel specifications in many countries, has meant that total refinery capacity has reduced as they adjust systems to deliver better quality fuels. The adjustment and upgrading of refineries to deliver better fuel quality has required significant refinery investment across the region.
3. Weather Events
Hurricane Katrina and Hurricane Rita in 2006 temporarily reduced the refining capacity of the US. Such reductions and speculation about availability of finished oil products (e.g. petrol) can cause volatility in fuel prices which can reach across the globe.
4. Seasonality Effect
Global product prices are also impacted by seasonality factors such as the onset of winter whereby Europe, Japan and the US will see an increase in the demand for diesel and kerosene to heat homes and offices. Likewise, summer will see an increase in demand for petrol as people tend to travel more during those months. Studies have shown that a significant level of the price changes in petrol and diesel prices are attributed to seasonality effects.
5. Currency Fluctuations
Product prices are traded in US$ per barrel and as such, Singapore consumers will be impacted should the US dollar move up or down, as this impacts on our purchasing power.
6. Market Speculation
In recent years there has been new entrants and increased interest in the oil commodities market, mainly from investment funds and hedge fund managers. It is widely believed that this has added to the volatility of the oil prices.
7. Political Instability
Political instability in the Middle East continues to cause uncertainties around crude oil availability and has a significant impact on crude oil price volatility.
Disclaimer:
All information provided herein is intended for general information purposes only and does not constitute an advice or directive. You should not rely on it in connection with the making of any decision. While we try to ensure that all information provided herein is correct at the time of inclusion, we do not guarantee the accuracy of such information, in particular, information that is obtained from a third party source. We are not liable for any action you may take as a result of relying on such information or for any loss or damage suffered by you as a result of you taking this action.
