If you were ready for a slight reprieve in how much you’d have to pay at the fuel station the coming week, you would have likely been disappointed after the fuel price announcement earlier this evening. Global crude oil prices have gone down, yet the weekly retail prices in Malaysia went up.
This contradiction will likely leave many Malaysians confused, but the Ministry of Finance (MOF) has released an infographic breaking down the key factors behind this week’s price adjustments.
The first takeaway from the MOF’s announcement is time lag. The weekly pump price isn’t a direct reflection of today’s spot market price for crude oil. The MOF states that the pump price is determined based on the average of the previous week’s prices.
This means that while global prices are dipping now, our pump price was calculated from the averages of last week, which was still in an uptrend. We are, essentially, paying for the higher average of the past, not the lower price of the present.
The second factor is the commercial reality of a long supply chain. The fuel in the pumps at your local station was not bought on the spot market that very day. The MOF clarified that the current supply being sold was, in fact, purchased when prices were higher.
The MOF provided a specific five-week context, noting that global oil prices had surged prior to this recent dip. This surge didn’t just affect the cost of crude; it also cascaded through the supply chain, increasing costs for essential services like logistics and insurance.
The MOF noted that current retail prices are still reflecting the high-cost inventories of previous supplies. These stocks were purchased at approximately US$150 per barrel forpetrol and US$250 per barrel for diesel. This high-cost inventory must be cleared before the benefit of current lower global prices can be passed on.
We are essentially paying a delayed bill, until the system completes the cycle of using up the previously expensive stock and averaging new lower prices.
So what can we do? Drivers should manage their expectations for an immediate drop. The lower global crude prices seen now will, if they remain low, be factored into the next weekly calculation. We might see a downward adjustment next week, if this week’s average allows it.
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