A study of diesel retail prices conducted by the Consumer Council indicated that oil companies could have adopted the price practice of "more in going up, less in coming down" (加多減少), but the prices have not been seen to be "quick in going up, slow in coming down"(加快減慢).
A group from the transportation industry lodged a complaint to the Council against the oil companies for allegedly concerted pricing practice. The group alleged that the retail prices of diesel usually practiced in the states of "more in going up, less in coming down" and "quick in going up, slow in coming down". Although diesel is commonly consumed by commercial drivers, its price fluctuation indirectly affects general consumers. The Council hence initiated a study on the issue.
The study analyzed the changes in local diesel retail price and the international Brent crude oil price during the period of January 2007 to July 2011, to find out the pricing practice adopted of the oil companies.
The data showed:
（1） The retail pricing practice of "more in going up, less in coming down" is observed;
（2） Local diesel retail price was moving in tandem with the international crude oil price, and there was no indication of "quick in going up, slow in coming down".
The Council pointed out that, in the 55 months covered by the study, the data showed the price gap between the import price and retail price of diesel was significantly widened when oil companies adjusted the diesel retail price during the period of time when there was a large price fluctuation in crude oil.
After taking into consideration on tax cut and pumping price discount, the average price gap difference between retail price and international oil price was widened from HK$3 before July 2008 to roughly around HK$6 in 6 months. The difference there dropped to HK$ 4 to HK$5 afterwards.
In 2007 and 2008, the oil companies lowered the retail prices when the Government cut diesel tax. Despite of this, the Consumer Council observed that the price gap between import and retail prices was even bigger in the second half of 2008. In the meantime the international oil price went down significantly since July 2008.
The Council also examined whether there is co-ordination in price adjustments among the oil companies. There was no indication of price collusion.
From July 2009 to June 2011, there were 19 instances of reduction in retail prices and 31 price increases. In most cases of price increase (29 out of 31), one oil company adjusted the price first and the other oil companies followed suit, within several hours or 1 to 2 days.
When there was a price reduction, in 14 out of 19 instances, more than one oil company lowered the diesel retail price at the same time.
Generally speaking, if enterprises acted in concert to fix the price, there should be more instances of simultaneous price increases observed. But the study found that very seldom oil companies increased the retail price at the same time.
Nevertheless, the Council noted that one of the 5 oil companies made the price adjustment ahead of others, as seen in 28 out of 31 instances of price increase and 17 out 19 instances of price reduction. However, since this company is of similar size as its competitors and it is not in a dominant market position, the company cannot be regarded as playing a leading role in determining the market price.
Deductions premised on available data and given circumstances by the Council, the average gross profit margin (before deduction of operational cost) of the oil companies have maintained at 25% since 2005. The net profit margin for some oil companies could have increased significantly in the past 5 years, of which the estimated net profit margin for diesel might have increased from HK$0.03 per litre to as much as HK$0.83 per litre.
However, higher land cost could have significant impact on the net profit margin for some oil companies as claimed by the industry. For instance, in the case of one oil company that claimed to have incurred a 117% increase in land cost during this period, it could face a net loss of HK$0.36 per litre of diesel. Corporate fleet discount is another factor bearing on profit.
The Council considers that, in view of the foregoing situation, oil companies can reveal actual data to the public to demonstrate that they do not make use of the fluctuation of diesel prices in the international market to get additional profit.
Local petroleum industry is a highly centralized oligopolistic market. Oligopoly also exists in overseas diesel market which is a target of scrutiny by the competition authority.
In future, when Hong Kong has a competition authority vested with appropriate investigative power, it can look into the collusive pricing behaviour to address the concerns of the public and the industry if evidence surfaces.
The Council believes that disclosing clearly the actual retail price is a better approach for oil companies. Tactics on setting different types of discounts and pricing practices would only undermine the market transparency.
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