SINGAPORE: When conflict erupted in the Middle East, global crude oil markets were rattled, and pump prices followed. Petrol spiked first, with motorists feeling the pinch within days.
But the dynamic has since shifted: diesel has overtaken petrol in price, and analysts say the gap is unlikely to close anytime soon.
A week before the war broke out in late February, major pump stations in Singapore were charging up to S$2.66 per litre of diesel – cheaper than the S$2.88 for 95-octane petrol.
That has since reversed. As of Tuesday (Mar 31), Shell was the most expensive at S$4.23 per litre for diesel, followed by Caltex and Esso at S$4.13, according to price comparison app Price Kaki. SPC and Sinopec charged S$3.92 and S$3.93 respectively.
By comparison, 95-octane petrol is now the cheaper option, at S$3.40 to S$3.42 per litre.
What is driving this shift, and how long will it last? CNA finds out.
Diesel is structurally more vulnerable to supply shocks than petrol, analysts say.
It relies on medium or heavy sour crude, which is the type most at risk from Middle East disruptions, and is heavily exposed to global shipping chokepoints such as the Strait of Hormuz, said Mr Nithin Prakash, a commodity analyst at Rystad Energy.
Supply has been further squeezed by Ukrainian strikes on Russian refineries, China's export restrictions limiting Asian diesel flows, and limited refinery flexibility to boost diesel output.
Demand, meanwhile, has not let up. Diesel powers the industrial, transport, logistics and aviation sectors – consumers who cannot simply cut back when prices rise.
A motorist facing high petrol prices can switch to public transport. A logistics operator has no such option, said Dr David Broadstock, a partner at energy consultancy The Lantau Group.
"Whether it's delivering goods or people, if the price of diesel goes up, they still need to do their work. They won't change the amount of diesel that they consume unless everybody in the economy stops moving around," the economist said.
Petrol prices, by contrast, are cushioned by higher inventories and more flexible supply, added Mr Nithin.
With geopolitical uncertainty showing no sign of easing, fuel providers are in no hurry to bring prices back down.
"Everything about what's happening in the Middle East says that we have more uncertainty ahead, and uncertainty typically translates into higher prices," said Dr Broadstock.
The current diesel premium over petrol is unlikely to be short-lived, both analysts agree, though they differ on its duration.
Mr Nithin said the structural supply shortfall means prices will not simply revert once the immediate crisis passes. "Even with a de-escalation, a 30 to 40 per cent correction is possible, but rebuilding damaged infrastructure and restoring flows could take years," he said, predicting diesel will remain more expensive than petrol for at least the next year.
Dr Broadstock similarly does not expect a quick reversal, though he puts the likely horizon at months rather than years.
Seasonal demand adds further support to diesel prices – construction and agriculture in spring, heating in winter – while petrol demand is being softened over time by electric vehicle adoption and slower consumption growth, Mr Nithin said.
Governments are likely to intervene before prices become untenable, Dr Broadstock added. "We're likely to see efforts to try to stabilise those prices … especially where it impacts residential households, which is more likely on the petrol side."
Rising diesel costs ripple quickly through the broader economy. Freight, logistics and production costs all go up – and eventually, so do the prices consumers pay for goods and food.
Historically, a 10 per cent rise in diesel prices can translate into a one to two percentage point increase in the consumer price index over six to nine months, said Mr Nithin. The full effect of recent surges has yet to show up in current inflation data, he noted.
Dr Broadstock cautioned that Singapore's exposure goes beyond domestic diesel prices. As a heavily import-dependent economy, Singapore is vulnerable to price increases across the full range of imported goods – all of which face higher shipping and logistics costs.
"We can confidently say this will add inflationary pressure, but we cannot confidently say how much," he said.
Yes, as with most countries.
Strategic energy reserves are typically sized to keep an economy running for roughly two to three months should supplies be cut off entirely, said Dr Broadstock. Diesel, as a key transport fuel, would be part of any such reserve.
In Singapore, the Energy Market Authority also requires power generators to hold diesel stockpiles as backup fuel. Recent measures have increased buffer levels, though these are designed for short-term operational resilience rather than broader market intervention, said Mr Nithin.
Not yet – but supplies are stretched.
"We're not in a situation where diesel is tight globally," said Mr Nithin. However, with inventories already on the lower end and geopolitical risks elevated, securing additional supply is becoming harder. Freight and insurance costs could also climb as a result, he added.
Dr Broadstock noted that governments and major importers are already exploring alternative fuel sources and diversifying away from Russian supply. While the disruption to the Strait of Hormuz has affected roughly 20 per cent of global liquefied natural gas (LNG) flows, he said the market has had time to adapt.
"The ability for the rest of the market to scale up production – and now that we are talking weeks, almost measuring into months of understanding that the supply chain is disrupted – it's also enough time for different parties to scale up their supply," he said.
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But the dynamic has since shifted: diesel has overtaken petrol in price, and analysts say the gap is unlikely to close anytime soon.
A week before the war broke out in late February, major pump stations in Singapore were charging up to S$2.66 per litre of diesel – cheaper than the S$2.88 for 95-octane petrol.
That has since reversed. As of Tuesday (Mar 31), Shell was the most expensive at S$4.23 per litre for diesel, followed by Caltex and Esso at S$4.13, according to price comparison app Price Kaki. SPC and Sinopec charged S$3.92 and S$3.93 respectively.
By comparison, 95-octane petrol is now the cheaper option, at S$3.40 to S$3.42 per litre.
What is driving this shift, and how long will it last? CNA finds out.
Why is diesel outpacing petrol in price?
Diesel is structurally more vulnerable to supply shocks than petrol, analysts say.
It relies on medium or heavy sour crude, which is the type most at risk from Middle East disruptions, and is heavily exposed to global shipping chokepoints such as the Strait of Hormuz, said Mr Nithin Prakash, a commodity analyst at Rystad Energy.
Supply has been further squeezed by Ukrainian strikes on Russian refineries, China's export restrictions limiting Asian diesel flows, and limited refinery flexibility to boost diesel output.
Demand, meanwhile, has not let up. Diesel powers the industrial, transport, logistics and aviation sectors – consumers who cannot simply cut back when prices rise.
A motorist facing high petrol prices can switch to public transport. A logistics operator has no such option, said Dr David Broadstock, a partner at energy consultancy The Lantau Group.
"Whether it's delivering goods or people, if the price of diesel goes up, they still need to do their work. They won't change the amount of diesel that they consume unless everybody in the economy stops moving around," the economist said.
Petrol prices, by contrast, are cushioned by higher inventories and more flexible supply, added Mr Nithin.
With geopolitical uncertainty showing no sign of easing, fuel providers are in no hurry to bring prices back down.
"Everything about what's happening in the Middle East says that we have more uncertainty ahead, and uncertainty typically translates into higher prices," said Dr Broadstock.
Is the price gap temporary?
The current diesel premium over petrol is unlikely to be short-lived, both analysts agree, though they differ on its duration.
Mr Nithin said the structural supply shortfall means prices will not simply revert once the immediate crisis passes. "Even with a de-escalation, a 30 to 40 per cent correction is possible, but rebuilding damaged infrastructure and restoring flows could take years," he said, predicting diesel will remain more expensive than petrol for at least the next year.
Dr Broadstock similarly does not expect a quick reversal, though he puts the likely horizon at months rather than years.
Seasonal demand adds further support to diesel prices – construction and agriculture in spring, heating in winter – while petrol demand is being softened over time by electric vehicle adoption and slower consumption growth, Mr Nithin said.
Governments are likely to intervene before prices become untenable, Dr Broadstock added. "We're likely to see efforts to try to stabilise those prices … especially where it impacts residential households, which is more likely on the petrol side."
Related:
What does this mean for consumer prices and inflation?
Rising diesel costs ripple quickly through the broader economy. Freight, logistics and production costs all go up – and eventually, so do the prices consumers pay for goods and food.
Historically, a 10 per cent rise in diesel prices can translate into a one to two percentage point increase in the consumer price index over six to nine months, said Mr Nithin. The full effect of recent surges has yet to show up in current inflation data, he noted.
Dr Broadstock cautioned that Singapore's exposure goes beyond domestic diesel prices. As a heavily import-dependent economy, Singapore is vulnerable to price increases across the full range of imported goods – all of which face higher shipping and logistics costs.
"We can confidently say this will add inflationary pressure, but we cannot confidently say how much," he said.
Does Singapore maintain a diesel stockpile?
Yes, as with most countries.
Strategic energy reserves are typically sized to keep an economy running for roughly two to three months should supplies be cut off entirely, said Dr Broadstock. Diesel, as a key transport fuel, would be part of any such reserve.
In Singapore, the Energy Market Authority also requires power generators to hold diesel stockpiles as backup fuel. Recent measures have increased buffer levels, though these are designed for short-term operational resilience rather than broader market intervention, said Mr Nithin.
Is there a global diesel shortage?
Not yet – but supplies are stretched.
"We're not in a situation where diesel is tight globally," said Mr Nithin. However, with inventories already on the lower end and geopolitical risks elevated, securing additional supply is becoming harder. Freight and insurance costs could also climb as a result, he added.
Dr Broadstock noted that governments and major importers are already exploring alternative fuel sources and diversifying away from Russian supply. While the disruption to the Strait of Hormuz has affected roughly 20 per cent of global liquefied natural gas (LNG) flows, he said the market has had time to adapt.
"The ability for the rest of the market to scale up production – and now that we are talking weeks, almost measuring into months of understanding that the supply chain is disrupted – it's also enough time for different parties to scale up their supply," he said.
Want an issue or topic explained? Email us at digitalnews [at] mediacorp.com.sg (digitalnews[at]mediacorp[dot]com[dot]sg). Your question might become a story on our site.
Continue reading...