SINGAPORE: Motorists in Singapore concerned about the risk that the weekend attacks on Saudi Arabia’s oil infrastructure could translate to higher petrol prices may not have to worry just yet, analysts said.
While global oil prices saw volatile swings in the wake of Saturday’s (Sep 14) drone strikes on the world’s top oil exporter, analysts said more clarity and prices being "elevated for a long time” will be needed before there will be a trickle-down effect to Singapore’s petrol stations.
“If Saudi Arabia can quickly repair its facilities and Brent prices return to US$60 to US$65 a barrel, prices at the pump stations are unlikely to display much volatility,” said OCBC economist Howie Lee.
“Conversely, if the high oil prices persist, then it is more likely that petrol prices will inch higher," he added.
“It’s more than just day-to-day moves,” echoed CIMB Private Banking economist Song Seng Wun.
“What’s more important now is what will happen in the longer term – how long will the interruption be, are there ample stocks globally, how might the American shale producers react, and whether worries about global growth and demand may overrule any supply disruptions," added Mr Song.
Prices for the most popular 95-octane grade petrol ranged from S$2.29 to S$2.31 a litre before discount at Caltex, Shell and Singapore Petroleum Company (SPC), according to prices available on their websites on Wednesday evening.
The premium 98-octane grade was going at S$2.63 to S$2.72, while diesel prices were seen between S$1.87 and S$1.92.
At SPC and Caltex, the 92-octane petrol was retailing at S$2.25 and S$2.27 a litre.
Compared to last Friday, each petrol category saw a price increase of 2 to 4 cents but analysts told CNA that these adjustments are unlikely to be reactions to the debilitating attack on Saudi Arabian crude facilities.
This boils down to various reasons.
First, petrol companies use what is called the Mean of Platts Singapore (MOPS), or wholesale prices of refined oil, prices to determine retail petrol prices. This includes the cost of refining crude oil into wholesale petrol and fluctuates according to various factors, such as economic conditions and seasonal factors, as well as storage and transportation cost.
There are other considerations that go into pricing decisions of retailers, such as storage, land, labour and marketing costs, duties, as well as currency differences.
Meanwhile, there is the typical “lag effect” given how pump prices are based on older inventories bought at either higher or lower prices depending on the market situation then.
Said Mr Song: “For the refiners, petrol prices will depend on how much stocks they’ve got on hand, the prices at which they locked them in and others.
“A lot of people worry about the price increases now, but don’t forget global oil prices were actually a lot higher this time last year at close to US$80 a barrel, before it declined towards the end of the year on worries about global trade and growth,” he added.
Supporting that, Mr Lee said: “I would think that these small changes at the pumps are nothing related to what we saw over the weekend. (Impact on prices) usually take a while because reviews are done as and when necessary, instead of on a scheduled basis.”
When contacted by CNA, petrol companies said their pricing strategies are driven by a myriad of factors, including competition dynamics.
ExxonMobil said pump prices at its network of service stations are “in line with prevailing market conditions” after having made “several price adjustments in the last two months, with a mix of downward and upward movements before the recent spike in crude oil prices”.
It added that it will continue to provide more value to its customers through its rewards programme and other promotional activities.
Chevron, which operates the Caltex brand here, said: “We value our customers and firmly believe in offering our products at fair, reasonable and competitive prices.”
In terms of supply, the company sources crude from multiple global suppliers.
“We are monitoring the situation and will take the necessary actions to continue to meet the needs of the marketplace,” added its spokesperson.
Shell declined comment, while SPC did not immediately respond to queries.
The strikes, carried out early Saturday morning, hit Abqaiq, the world's largest oil processing facility, and the Khurais oil field in Saudi Arabia’s eastern province – two major facilities owned by state-owned energy giant Saudi Aramco.
It knocked 5.7 million barrels per day off production, more than half of the OPEC kingpin’s output. It is also equivalent to 5 per cent of global production – an outage worse than supply shocks during the 1979 Iranian revolution and the 1991 invasion of Kuwait, according to the International Energy Agency.
Amid anxiety over supply shortages and the possibility of a new threat to the global economy, global oil prices spiked when markets reopened on Monday.
Brent crude, the international benchmark, surged 14.6 per cent to US$69.02 a barrel – its biggest one-day percentage gain since at least 1988. US West Texas Intermediate (WTI) futures also marked its biggest one-day percentage gain since December 2008, with a 14.7 per cent jump to US$62.90 a barrel.
Saudi Arabia sought to reassure markets on Tuesday, saying that it had restored oil supplies to customers at levels before the attacks by drawing from its inventories.
Energy Minister Prince Abdulaziz bin Salman added that Saudi Arabia’s average oil production in September and October would be 9.89 million barrels per day and that this month’s oil supply commitments to customers would be met fully.
With that, oil prices receded 6 per cent on Tuesday, before dropping further during Wednesday’s trade.
Brent was last seen at US$63.73, down more than 1 per cent, while WTI fell 2 per cent to trade at US$58.15 on Wednesday evening.
“The latest news means that we will not be rushing to revise up our oil price forecast of US$60 per barrel at end-2019,” said Ms Caroline Bain, chief commodities economist from Capital Economics.
Referring to the statements from Saudi Arabia, she added: “There will be minimal disruption to global supply. In any case, logistical bottlenecks can be more than covered by drawing down high global stocks.”
Still, analysts warned of lingering uncertainties.
“A lot depends on how fast Saudi Arabia can resume full functionality,” said Mr Lee from OCBC.
“Private estimates suggest Saudi Arabia has about a month before its stocks run out – the closer we are to depleting these reserves, the higher oil prices will rise.”
Saudi Arabia will also need to demonstrate its abilities in deterring further attacks.
“Until that is established, oil prices are likely to trade with a substantial risk premium,” Mr Lee told CNA, adding that a forecast of US$$70 a barrel for Brent “seems fair at the moment, although it may rise to US$80 if Saudi Arabia comes close in depleting its reserves”.
There is also the risk of conflict in the Middle East amid elevated tensions.
Saudi Arabia on Wednesday said the attack on its oil facilities was “launched from the north and unquestionably sponsored by Iran”.
At the press conference, its defence ministry’s spokesman also refuted claims by Yemen’s Houthi rebels, an Iran-aligned group who has said they were behind the weekend strikes.
“The outlook for the oil market is that oil prices will surge upwards immediately and the prices are expected to surge higher if there is further conflict in the Middle East,” said SIM Global Education’s senior lecturer Tan Khay Boon.
“The risk is that there could be a confrontation between the US and Iran," Dr Tan added.
Escalating tensions and "potential military action" in the Middle East have skewed oil prices towards the upside as traders deliberate supply-side uncertainties, noted Phillip Futures analyst Benjamin Lu.
US President Donald Trump earlier on Wednesday said that he had instructed the Treasury Department to “substantially increase" US sanctions on Iran.
He gave no explanation in a Twitter post announcing the order, but it followed repeated US assertions that Iran was behind Saturday’s attack and came hours after Saudi Arabia said the strike was a “test of global will”.
Iran has denied involvement in the strikes.