Idemitsu to change oil prices weekly
September 18th, 2008 | by mantrionline |Major oil wholesaler Idemitsu Kosan Co. will begin revising its oil products’ wholesale prices every week starting in October to more promptly reflect changes in crude oil prices, the company said.
Idemitsu’s new pricing system will replace its current twice-a-month price revision method.
Nippon Oil Corp., the nation’s No. 1 oil wholesaler, also plans to change its wholesale prices every week starting in October, instead of setting wholesale prices on a monthly basis as it does now.
Because of the change, major price fluctuations likely will occur weekly, though retail prices at gas stations will see minor daily changes.
Beginning in October, Idemitsu will set wholesale prices every Monday based on inter-dealer spot market estimations released by private research institutes.
The changing price structures will affect four products–gasoline, kerosene, diesel oil and Bunker A–in seven regions, such as Kanto, Chubu and Kinki.
Idemitsu said wholesale prices will be decided based on weekly averages in markets. Additional factors, such as brand loyalty, distribution cost and preferential treatment for large-lot buyers also will be taken into consideration.
Until now, oil wholesalers have changed their wholesale prices once or twice a month based on crude oil procurement costs and foreign exchange rate fluctuations.
When wholesale prices are changed once a month, gas stations usually change retail prices at the beginning of each month. Because of this, long lines often form at gas stations at the end of months when retail gas prices are expected to rise.
Recently, crude oil prices surged, but it took time for oil wholesalers to raise wholesale prices, which hurt their earnings.
Under the new method, crude oil price changes can be more quickly reflected in wholesale prices and wholesale prices will be more largely affected by demand for gasoline.
In Western countries, oil wholesale prices are decided based on market prices and retail prices change more frequently.
In a spot market, oil wholesalers sell surplus petroleum products to trading companies and other firms, and prices of such products can be more than 10 yen lower per liter than wholesale prices for affiliated oil retailers.
Because wholesalers will decide prices based on the spot market figures beginning in October, it is likely that gaps between the wholesale prices for affiliated retailers and lower prices traded in spot markets will decrease.
In the global crude oil market, the price of West Texas Intermediate, an international indicator of crude oil prices, has fallen to the 90 dollars per barrel level after surpassing 147 dollars on July 11.
Consequently, prices for wholesale gasoline and other petroleum products likely will begin to fall in October.
Trouble ahead?
Idemitsu’s new pricing system will use spot prices announced by commercial research companies as a yardstick after surveying direct transactions among wholesalers, trading companies and other relevant businesses.
According to Prof. Masatoshi Kojima, dean of the Faculty of Economics of Toyo University and an expert on the distribution of petroleum products, the new system may not be foolproof.
“It’s possible that wholesalers and other dealers might force each other to unilaterally accept prices decided in negotiation transactions,” he said.
Nippon Oil plans to include gasoline futures prices in the Tokyo Commodity Exchange (TOCOM) as one of its indicators to decide its wholesale prices. But the company may find this task difficult because TOCOM has less trading flexibility in U.S. crude oil markets.
Idemitsu said the company might cap increases of wholesale prices for affiliated retailers in individual negotiations if the retailers are unable to pass increased prices on to consumers due to fierce competition.
“The price-deciding process might become less transparent in such cases,” the president of a gas station in Tokyo affiliated with Idemitsu said.
