A senior international economist has said Fiji’s petrol price increases that came into effect on April 1 is confusing and that “something seems amiss” in the Fijian Competition and Consumer Commission’s (FCCC) latest price determination.
The April 1 fuel reset suggests an application of incorrect data or a departure from established methodology.
Sydney-based ANZ Group senior Pacific economist Dr Kishti Sen said the April 1 prices that came into effect after the March review should not have factored in the March rally in crude oil prices but should have been purely based off the February crude oil prices.
He said to estimate the cost of refined petroleum products imported into the country during any month, the FCCC would look at the Mean of Platts Singapore benchmark for refined petroleum products (MOPS) in that month, and would also add or subtract freight, refiner margins and Fijian and US currency movements over the month to determine new prices at the petrol pump stations.
He said the most important driver of monthly price changes were MOPs prices as the rest of the influencers (freight, margins and currency) were steady from month to month.
“Here’s the thing that is missed by many. The MOPs prices are determined by the price of Brent Crude oil in the month prior,” Mr Sen told this newspaper.
“Why month prior? The answer lies in the way the crude oil market functions. The typical crude oil market works as a ‘futures market’ as opposed to a spot market where you pay to take immediate delivery of oil.
“In the futures market, the headline prices you see today are prices for delivery of oil sometime in the future – it could be next month, the month after or several months later; it is certainly not spot prices.
“Hence, the best estimate of cost of petroleum products imported into the country in any month is the price of brent crude in the month prior because the price of Brent in the month prior actually reflects the prices that refiners have paid to take delivery of the crude oil in the current month.
“That’s the lag structure. A one-month lag structure. It is a methodology that has served Fiji well over time.”
Mr Sen said in keeping with that established methodology and historical price reviews, the April prices ought to have reflected the cost of importing refined petroleum products into Fiji during the month of March.
He said the March costs should have been worked off the average price of Brent crude oil for all of February, which stood at $US69 per barrel – up 7.2 per cent on the previous month (January).
He explained such a rise would have delivered about a $0.07 cents/litre increase from April 1 at petrol stations in urban areas and slightly higher as one moved out of city centres and into regional and maritime islands.
“Instead, prices rose by 21 per cent from $2.44/litre to $2.93/litre. This 21 per cent is more in line with the 24 per cent increase in price of Brent crude over a seven week period – that is, for all of February plus the first three weeks of March, over January.
“The addition of three weeks of March prices is a surprise as the refiners in Singapore and South Korea, from where Fiji sources its products, would only be taking delivery of the higher (March) priced oil today and for the rest of April.
“Hence, the March rally in Brent crude oil was expected to be factored into prices that came into effect on May 1 and not April 1.
“Something seems amiss here.” The inference you can draw is twofold. One is that inaccurate data has been fed into the models and two that there is a significant change in methodology of price determination which hasn’t been explained as yet.
