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Formosa Petrochemical matches rival's price cuts

The privately owned oil refiner Formosa Petrochemical Corp (台塑石化) yesterday matched its bigger rival's price adjustments announced on Monday, cutting wholesale prices of gasoline and diesel oil by NT$0.9 per liter, effective from 10am yesterday.

"Although domestic pump prices of gasoline are much lower than those of neighboring nations, Formosa Petrochemical decided to follow our rival's price cuts in accordance with the market competition principle," the firm said in a statement posted on its Web site.

Retail prices will be determined by its contracted gas stations, it added.

Following the adjustments, Formosa Petrochemical reported wholesale prices of NT$25.917 per liter for 98-octane unleaded gasoline, NT$24.617 for 95-octane and NT$23.917 for 92-octane, the same pricing levels bulletined by state-run Chinese Petroleum Corp (CPC, 中油).

With CPC set to use a floating pricing mechanism until the end of the year, Formosa Petrochemical said it would adopt a wait-and-see attitude for the moment, citing a different operational approach.

Formosa Petrochemical said that more deliberation was needed to see whether CPC's new pricing strategy would apply to private firms, since CPC had not disclosed its pricing formula.

CPC on Monday said that it would match West Texas Intermediate (WTI) crude oil fluctuations every seven days to adjust its wholesale rates at the same range, regardless of hikes or reductions. New gasoline rates will be announced every Tuesday starting next week, the firm said.

The Consumers' Foundation (消基會), however, said that CPC should slash prices by another NT$2.5 per liter.

The consumer advocacy group said that CPC treated consumers like cash machines, adding that its floating pricing mechanism had not been established fairly.

Crude oil prices yesterday rose to US$61.46 per barrel, an increase of 0.67 percent from US$61.05 on Feb. 13.

However, CPC's retail rate of 95-octane unleaded gasoline yesterday still stood at NT$27.2 per liter, a huge jump of 10.6 percent from NT$24.6 on Feb. 13, said Cheng Jen-hung (程仁宏), the foundation's vice chairman, during a press conference.

CPC had hiked prices by a total of NT$4 per liter this year before announcing cuts of NT$1.4 this month.

In light of CPC's new pricing mechanism, some pundits are worried that consumer prices might see drastic fluctuations.

Liang Kuo-yuan (梁國源), president of Polaris Research Institute (寶華綜合經濟研究院), said the mechanism was unlikely to exert a significant impact on the consumer price index (CPI), as gasoline prices comprised only a small part of the calculation of the CPI.

He urged the Ministry of Economic Affairs and the oil refiner to conduct thorough research to map out the best pricing system.

Liang predicted that crude oil should fluctuate mildly between US$55 and US$60 per barrel for the rest of the year, as geopolitical tensions have eased off.

Oil prices were unlikely to drop below US$50, he added.

Chen Miao (陳淼), a researcher at the Taiwan Institute of Economic Research (TIER, 台經院), criticized the new pricing scheme, citing CPC's mission to help stabilize consumer prices.

"If we allow gasoline rates to swing with international crude prices, why do we need a state-run oil refiner?" he asked during a phone interview.
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