Oil slump has uneven impact on global prices at the pump

PHILADELPHIA/KHOBAR, Saudi Arabia — A dramatic drop in oil prices is translating into a mixed bag for motorists across the globe, from hefty savings at the pump in the United States to a rare fuel price hike in Venezuela.

Oil prices have dropped nearly 70 per cent in the past 20 months, driven down by a glut in supply. All countries have access to the same oil prices on international markets, but retail gasoline prices vary wildly, largely because of the taxes and subsidies imposed on them.

That has meant the impact of diving oil prices has been uneven around the world.

In the United States, for example, drivers have enjoyed the fall as average gasoline prices tumbled to $1.64 a gallon ($0.43 a litre) last month from $3.37 a gallon ($0.89 a litre) two years ago. That has spurred a road renaissance of sorts as Americans hit the highways in greater numbers.

"It's great. It used to pain me to fill up my car, but now it's no big deal," said Patsy Gehring, a 59-year old who lives in Philadelphia. She says she notices the low pump prices every time she fills up her 2014 Honda Civic and is considering driving instead of flying on an upcoming trip to Florida.

"I'm probably going to end up driving. I'd prefer to fly, but gas prices are so cheap it just makes sense," she added.

The decline in prices at the pump has been more muted in countries like Indonesia, China and India, which have tried to reduce subsidies and absorb some of the gains from lower oil prices as taxes or levies, Barclays indicated in a research report.

Overall, retail fuel prices in Asia, which is home to three of the world's four largest energy importers, have fallen only about 35 per cent despite the almost 70 per cent decline in oil prices since July 2014, Barclays said.

‘No choice’

In China, the wholesale gasoline price ceiling, which is set by the country's central planning commission, has fallen 29 per cent since February 2014. But in January, regulators set a floor on price cuts, saying they would no longer adjust prices down when oil prices are below $40 a barrel. 

One benchmark oil price, Brent crude, was trading at around $36 a barrel lasy week.

Meanwhile, the Chinese government has also raised the consumption tax on fuel three times six since the slide in oil prices began. In Beijing, motorists appeared resigned to the limited benefit.

"When you look at oil prices, you can see the price at the pump should be a lot lower," said a 35-year-old man driving a black Audi A6, who gave his surname as Gao.

In Hong Kong, which has the world's most expensive gasoline at $6.69 per gallon ($1.76 per litre) according to www.globalpetrolprices.com, the slow downward march in prices has not impressed car owner Simon Lam. 

"It's been at this price range for so long and we have no choice but to accept that," he said.

A different story is being played out in two major oil producing countries, Saudi Arabia and Venezuela, where prices at the pump have actually risen due to cuts in subsidies, imposed to compensate for the economic hit from the oil price crash.

Venezuela in February increased pump rates for the first time in nearly 20 years. Its 95 octane gasoline rose more than 6,000 per cent from 0.097 bolivars to 6 bolivars per litre. (From 0.36 bolivars to 22.7 bolivars per gallon.) 

While that is $0.60 at the strongest official exchange rate, it is far less at the weakest official rate and just $0.006 on the black market, making it the cheapest fuel in the world at that rate.

The price is so low, especially in the face of raging inflation, that many Venezuelans support raising fuel rates even more.

"Gasoline is too cheap here. A litre of water is still more expensive than a litre of fuel. I have family abroad in Ecuador, and there it's very expensive, here it's nothing! They should have increased it a bit more," said taxi driver Raul Ramirez as he filled up his car at a Caracas gas station recently.

Similarly, Saudi Arabia, with its finances also hit hard by the oil slump, in December raised the price of 95 octane gasoline to 0.90 riyal ($0.24) per litre from 0.60 riyal. (From 2.27 to 3.40 riyal per gallon)

That still keeps Saudi Arabia among the countries with the cheapest gasoline prices in the world, so motorists are not complaining too much.

"It is still cheap, still reasonable — people can afford it," said a 40-year-old as he filled up at a gas station in Khobar near the state oil company's headquarters. "You don't usually tip the guy at the pump but in Saudi Arabia you do because petrol is so cheap.”