INVESTIGATION INTO EXISTENCE OF OIL CARTEL

Mr R. Ravindran asked the Minister for Trade and Industry whether his Ministry has recently investigated the existence of an oil cartel which fixes the price of consumer oil prices, in particular, vehicle petrol/diesel prices; and if not, whether his Ministry will investigate the existence of such a cartel.

Mr Lee Yock Suan: The recent allegations of price fixing by oil companies pointed to the uniformity of petrol and diesel prices as evidence of collusion. There were also complaints that the recent two-cent cut in petrol pump prices is not commensurate with the larger drop in fuel costs. Between January 1998 and August 1998, the posted price1 of RON 98 unleaded petrol of the major oil companies in Singapore dropped by between five and six cents per litre. During the same period, pump prices came down by four cents per litre.

1 Which can be loosely defined as the ex-refinery wholesale price of a petrol product.

My Ministry met the oil companies last week to seek their explanation on the allegations of price fixing, and on the observation that pump prices have generally been unresponsive to drops in fuel cost.

The oil companies gave my Ministry their assurance that there is no collusion to fix prices. They explained that in Singapore, where the market is small and with motorists within easy reach of several competing petrol stations, a price variation is unsustainable. Any reduction in prices would be quickly matched by competitors. The oil companies pointed to the large number of petrol products available2, and their focus on product marketing, service levels, free gifts and development of convenience facilities at petrol stations, as evidence of competition within the industry.

2 Seven grades of petrol.

On the issue of sticky pump prices, the oil companies explained that fuel cost is not the only determinant of pump prices. They depend also on the land lease, capital depreciation, operating costs, wages and others. Hence, it does not necessarily follow that a drop in fuel cost would translate into a reduction in pump prices.

My Ministry has urged the oil companies to quickly pass on cost savings to motorists. We will continue to monitor the situation and will not hesitate to take action if we find any evidence of collusion to fix prices.