Why diesel prices stay high

PUBLISHED : Wednesday, 16 November, 2011, 12:00am
UPDATED : Wednesday, 16 November, 2011, 12:00am


When it comes to oil prices, what goes up doesn't necessarily come down - or at least not by as much.

Local retail price for diesel jumps when international oil prices rise, but don't fall as much when global prices fall, the Consumer Council found.

The research, launched after a group of drivers complained in March last year about what they said were unfair pricing practices by oil companies, compared local diesel prices with the Brent crude oil price from January 2007 to July this year.

It found the drivers were right up to a point: the gap between the import price and retail price of diesel widened when crude oil prices fluctuated.

Based on limited information, the council said the net profit earned by some companies - which it refused to name - had increased from HK$0.03 per litre to HK$0.83 over the past five years.

The oil firms said they were not earning as much as estimated by the council due to rising costs and discounts offered to professional fleets.

But the council said they should release more information to show this was the case.

'Oil companies can reveal actual data to the public to demonstrate that they do not make use of fluctuating diesel prices in the international market to get additional profit,' Ambrose Ho Pui-him, chairman of the council's Publicity and Community Relations Committee, said.

When the crude oil price peaked in July 2008, the average retail price of diesel was HK$3 a litre higher than the international crude oil price. When crude dropped to its lowest point in the 55 months covered by the research in January 2009, the retail price was HK$6 higher than the international oil price.

The government reduced the diesel tax in 2007 and 2008, but it failed to stop the widening price difference.

The international price began a gradual climb from the beginning of 2009, and the difference between crude and retail prices remained at HK$4 to HK$5 per litre.

Nevertheless, the watchdog found no indication of price collusion among the companies. Usually one company adjusted the price first and the others followed in several hours or one to two days.

Legislator Fred Li Wah-ming said that when a competition law took effect, an authority with investigative powers to look into price collusion would be established. It would be in a better position than the Consumer Council to check such behaviour.

Nevertheless, it will be up to the government to decide if it wants regulation in face of the oil oligarchy.

'Is the pricing practice of oil companies oligarchical behaviour?' Li said. 'The government should consider if it should monitor the oil market in a way similar to the electricity market [which is a duopoly].'

A Shell spokesman said diesel prices were affected by rent, labour costs and operation costs, on top of import prices.

Chevron said Hong Kong was one of the most expensive places to operate. It offered discounts for consumers and fleets, it added.