Government outlines six reasons Thai oil prices reference Singapore

The official government Facebook page Thai Khu Fah (@ThaigovSpokesman) has published an explanation titled: “The truth about Thai oil prices: Why must they reference Singapore?” The key points are as follows:

Why Singapore prices are used as the reference:

Singapore prices are not prices set by the Singapore government or by Singapore refineries. Rather, they reflect oil trading across all countries in this region.

1) They reflect Thailand’s lowest import cost

Singapore is the largest export market in Asia and is the closest major market to Thailand. As a result, import costs from Singapore represent the lowest cost that Thai refineries must compete with.

2) Trading volumes are high

Singapore is a major oil trading market, much like New York. The oil traded does not necessarily have to be stored in Singapore, but transactions are agreed there because many oil trading companies operate in Singapore. Trading volumes are therefore high, similar to other major markets in Europe, America and the Middle East. This makes price manipulation by buyers or sellers more difficult, while prices better reflect the region’s supply capability and demand.

3) Prices reflect Asia’s supply capability and demand

Although Singapore’s total refining capacity is around 1.5 million barrels per day, which is still lower than that of China, Japan and South Korea, Singapore’s refining output is mainly for export. By contrast, countries with greater refining capacity than Singapore primarily refine for domestic use and only export what remains. Because Singapore refines mainly for export, prices in the Singapore market reflect true export prices and therefore better represent the supply capability and demand for refined oil products in Asia.

4) Singapore spot market prices are the basis for export pricing in many countries

Although Singapore’s exports have started to decline as refining capacity has increased in many countries, export prices in those countries still use Singapore oil prices as the basis for setting export prices. Export trading from many countries also continues to be conducted mainly in Singapore.

5) Singapore refined oil prices move in line with other global markets

Studies of oil price movements in the Middle East, Europe, America and the Singapore spot market show that refined oil prices in all markets move in the same direction and at similar levels. At certain times, some markets may move in a different direction or at a different level because supply and demand are temporarily out of balance. However, when prices in one market diverge too far from others, oil will flow into or out of that market until prices return to equilibrium. This is because refined oil sold in every market is a freely traded and internationally recognised commodity.

6) Singapore refined oil prices are less volatile than in other markets

Observations of refined oil price movements over the past three years show that prices in the Singapore spot market have been less volatile than in other markets. When Singapore prices have differed significantly from other markets, they have tended to return to equilibrium within around one to three days. This can be seen in March, when refined oil prices in the Singapore spot market adjusted back to normal levels later in the month.