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THE MONITORING OF PRICES IN THE OIL AND OIL PRODUCT MARKETS
The case of Portugal, a non-oil producing, small open economy
Manuel Sebastião
Portuguese Competition AuthorityKazan, September 2012
M. Sebastião - Prices in the oil and oil product markets September 2012
2
Russia: Oil-producing country Big, relatively closed economy
Portugal Non-oil producing country Small open economy
Does it make any difference for domestic retail gasoline and diesel prices? No? Yes? May be? Levels versus rates (price levels versus rates of change of prices)
FIRST QUESTION
September 2012
3M. Sebastião - Prices in the oil and oil product markets
1. LIQUID FUEL SECTOR
2. FOREIGN TRADE
3. BRENT, PLATTS AND DOMESTIC PRICES
4. WEEKLY PRICE CHANGES
5. PRICES IN PORTUGAL AND EUROPE
6. VALUE CHAIN
7. PRICES PER OPERATOR / REGION
8. MOTORWAY PRICES
CONTENTS
September 2012
4M. Sebastião - Prices in the oil and oil product markets
1. LIQUID FUEL SECTOR
Introductiona. The 8 topics of my presentation today reflect the PCA conceptual framework
in analysing and monitoring the liquid fuel sector in Portugal
b. They illustrate well the work carried out since the 2008 oil shock
c. They allow me to focus on 4 key issues:
1) High and volatile liquid fuel prices are a difficult, sensitive issue in any country
2) But it is not a competition issue; it is a tradable goods issue
3) Domestic retail prices cannot be very different from what they are, given international prices and domestic taxes. To say otherwise is to pander an illusion
4) They could be lower and more stable only if they were regulated . But if so, there are unavoidable costs attached
September 2012
5M. Sebastião - Prices in the oil and oil product markets
1. LIQUID FUEL SECTOR
PCA conclusions on the liquid fuel sector in Portugal1) It is a sector where the PCA has not detected any infringement to competition
law so far and where the PCA monitoring system in place is sufficiently robust so that the likelihood of detection is very high
2) It is a tradable goods sector where domestic prices fundamentally reflect international prices and domestic taxes and retail prices in any service station are available to anyone online
3) It is a sector where existing competition pressure could be improved mainly by structural measures aimed at expanding imports and storage essential facilities with easy access to potential competitors
4) The vertical integration (refinery → pipeline → warehouse) in part of the sector is efficient and has not raised competition concerns so far
5) It function exclusively according to market rules
6) Adjustment program for Portugal: no MoU measures
September 2012
6M. Sebastião - Prices in the oil and oil product markets
1. LIQUID FUEL SECTOR
The liquid fuel sector in a nutshell:
1) Tradable goods sector
2) Domestic prices basically reflect: (a) International gasoline and diesel prices (Platts NWE); and (b) Domestic taxes (Fuel tax and VAT); these two items account to around 90% of the retail price
3) All players have complete information on prices and spreads in real time => few or no incentives to collude on prices
4) The retail market works very much the same in all market economies: (a) indexed to international prices (Platts, not Brent); (b) high volume and narrow margins; (c) strict safety controls, mandatory reserves and tax compliance requirements (bonded warehouse => on-site fuel tax collection)
5) Limited room for manoeuvre in the case of open economies & non-oil producing countries
September 2012
7M. Sebastião - Prices in the oil and oil product markets
1. LIQUID FUEL SECTOR
The liquid fuel sector in a nutshell:
6) It is also a very “emotional” sector
Very prone to be “understood” according to two rules of thumb:
i. “If prices go up there is cartel, if prices go down there is competition”
ii. “If prices are equal there is cartel, if prices are different there is competition”
Rules not easy to enforce ... especially in a tradable goods sector
September 2012
8M. Sebastião - Prices in the oil and oil product markets
1. LIQUID FUEL SECTOR
Three basic points1) Three markets
a) Market for crude oil (Brent, London)
b) International market for gasoline and diesel ( Platts NWE)
c) Domestic market for gasoline and diesel (price before tax, price after tax)
2) Two price transmission mechanismsa) Price of crude International prices for gasoline and diesel
Brent Platts gasoline / diesel
b) International prices for gasoline and diesel domestic prices for gasoline and diesel before tax with lag (average of the previous week Platts)
Platts gasoline / diesel avg. pre tax price for gasoline / diesel
3) Asymmetries in rises and falls of domestic prices for gasoline and diesela) Fundamentally from outside the domestic market (asymmetries in Platts)
b) Less noticeable outside times when there is an oil shock
September 2012
9M. Sebastião - Prices in the oil and oil product markets
1. LIQUID FUEL SECTOR
Tradable goods:
a) Goods that are the subject of international trade (exports or imports)
b) Whose prices are set in international markets
c) That any economy, especially any samall open economy, cannot control
Liquid fuels, like crude oil, are tradable goods. Thus, any non-oil producing open economy has no option other than adjusting to international prices
M. Sebastião - Prices in the oil and oil product markets September 2012
10
1. LIQUID FUEL SECTOR
PCA work since the 2008 oil shock Initial Report, June 2008: January – April 2008
Interim Report, December 2008: January – September 2008
Final Report: March 2009: January – December 2008
• More complete and detailed analysis of full year 2008
• Wealth of data + Economic, statistical and econometric analysis
• Comprehensive approach based on actual and empirical evidence
• Analysis of structural and regulatory features
• To play a part in moving the debate on from a stance based merely on opinion to positions based on facts, data and the discipline of a rational discussion
M. Sebastião - Prices in the oil and oil product markets September 2012
11
Final Report: Not “the last word”
Monthly Statistics First issue: September 2009
Quarterly Fuel Market Newsletter First issue, 2004/Q2, released in September 2004 Each issue regularly released ever since 2008/Q3 issue: major improvements in parallel with Interim Report
1. LIQUID FUEL SECTOR
M. Sebastião - Prices in the oil and oil product markets September 2012
12
1. LIQUID FUEL SECTOR
Important – but difficult – to focus the debate on
Future challenges
Essential to focus on the real problems and main issues
(economic / social; present / future)
What are the right incentives for economic agents in the liquid
fuel market?
M. Sebastião - Prices in the oil and oil product markets September 2012
13
1. LIQUID FUEL SECTOR
The PCA reports and subsequent work have been
instrumental
To make sensible recommendations
To undertake competition advocacy based on sound knowledge
of the sector
To carry out the competition assessment of • the contracts between operators in the sector• the vertical agreements between oil companies and retailers
M. Sebastião - Prices in the oil and oil product markets September 2012
14
Two major issues:
1. ENERGY AND ENVIRONMENT
2. REFLECTIONS ON THE 2008 OIL SHOCK AND WHAT
HAS HAPPENED SINCE THEN
1. LIQUID FUEL SECTOR
M. Sebastião - Prices in the oil and oil product markets September 2012
15
Energy and environment
Major constraint
EU Energy and Solidarity Action Plan, 11-12 December 2008
Current stage: window of opportunity to work out medium and long-
term solutions without price pressure, knowing already how brutal
the price increases can be (size, speed)
Liquid fuels = non-renewable energy resource =>• Incentives to foster energy-saving and efficiency• Incentives to foster the use of renewable energy
CO2 emission permits => Critical for any new refinery
1. LIQUID FUEL SECTOR
M. Sebastião - Prices in the oil and oil product markets September 2012
16
Reflections on the 2008 oil shock
What we can learn from how Portugal and other countries reacted to
the 2008 oil shock and to past shocks
Important to understand Volatile markets: volatility tends to reflect fears and expectations
more than physical realities What is structural and what depends on the conjuncture What is global/European and what is Turkish or Portuguese
“The day after” Do not rest Prepare for the future
1. LIQUID FUEL SECTOR
M. Sebastião - Prices in the oil and oil product markets September 2012
17
Reflections on the 2008 oil shock
“Recoil”, The Economist, May 31st 2008
“Painful though it is, this oil shock will eventually spur huge change. Beware the hunt for scapegoats”
“The first two oil shocks banished oil from power generation. How fitting if the third finished the job and began to free transport from oil’s century-long monopoly.”
1. LIQUID FUEL SECTOR
M. Sebastião - Prices in the oil and oil product markets September 2012
18
1. LIQUID FUEL MARKET
7 BASIC IDEAS
1. Upstream and downstream value chain
2. Conceptual model: 3 markets
3. Comparisons of price changes
4. Liquid fuels = Tradable goods
5. Value chain (downstream) and competition concerns
6. How to stabilize the international liquid fuel market?
7. How to stabilize the domestic liquid fuel market?
M. Sebastião - Prices in the oil and oil product markets September 2012
19
1. LIQUID FUEL MARKET
IDEA # 1
Upstream and downstream value chain
Upstream: from drilling to refining
Downstream: from refining to end user
M. Sebastião - Prices in the oil and oil product markets September 2012
20
1. LIQUID FUEL MARKET
IDEA # 2
Conceptual model: 3 markets
1. Market for crude (in Europe, Brent price)
2. International liquid fuel market (In Europe, Platts
Rotterdam or Lavera)
3. Domestic market for liquid fuels
M. Sebastião - Prices in the oil and oil product markets September 2012
21
1. LIQUID FUEL MARKET
IDEA # 3
Comparisons of price changes
2 transmission mechanisms:
• Brent Platts & Platts Domestic pre-tax
2 currencies: Brent and Platts in $; Domestic prices in € or TL
Compare changes in domestic prices with
• Changes in Platts, not in Brent
• Changes in Platts in the same currency
M. Sebastião - Prices in the oil and oil product markets September 2012
22
1. LIQUID FUEL MARKET
IDEA # 4
Liquid fuels = Tradable goods
Refinery inputs and outputs: international prices (Brent and Platts + spreads)
Competitive pressure: refineries have to be efficient within this input-output international price range
Ex-refinery price cannot be lower / higher than Platts + spread
a) It cannot be higher: if it was, it would be better to import
b) It cannot be lower: this makes no economic sense
M. Sebastião - Prices in the oil and oil product markets September 2012
23
1. LIQUID FUEL MARKET
IDEA # 5
Value chain (downstream) and scrutiny by NCA
Important to understand for each stage: the economics; the regulation (technical and prudential); the tax regime; and the relative weight of each component in the chain value
NCA focus: Ex-refinery prices, Logistics, and Retail
Ex-refinery prices = Platts + spread
Logistics and retail: small relative weight in all EU countries, around 10% of retail price, 21% of pre-tax price
M. Sebastião - Prices in the oil and oil product markets September 2012
24
1. LIQUID FUEL MARKET
IDEA # 6
How to stabilize the international fuel market?
Nick Butter, FT 16-12-2008
Agreement on a broad target range for crude price ($50-$70 a barrel)
Strategic stock holding to be augmented or deployed when prices diverge from the range
Trading limited to agents with direct physical interest in the market
Longer term: infrastructure investment + climate change
M. Sebastião - Prices in the oil and oil product markets September 2012
25
1. LIQUID FUEL MARKET
IDEA # 7
How to stabilize the domestic fuel market?
When international markets are volatile, there is little room for manoeuvre in a small, open economy
Stable prices only if they are regulated
Market prices + additional imports and storage facilities + easier access to such facilities: on balance, the best option
M. Sebastião - Prices in the oil and oil product markets September 2012
26
IDEA # 2: 3 Markets
1. LIQUID FUEL MARKET
M. Sebastião - Prices in the oil and oil product markets September 2012
27
1. LIQUID FUEL MARKET
3 Markets
Each of the 3 markets is not a “single market”, but “a variety of
markets.” However, to understand how these markets work
and interact, it is easier to think of each one as a “single
market”
Key points concerning the interface between the 3 markets1) The relationship between the 3 markets
2) The lags between the 3 markets
3) The symmetry or asymmetry of each market
M. Sebastião - Prices in the oil and oil product markets September 2012
28
1. LIQUID FUEL MARKET
OIL MARKET & INTERNATIONAL LIQUID FUEL MKT
Oil market• Supply:Cartel of sovereign states• Demand: Big players (oil companies + big brokers)
International liquid fuel market• Supply:Big players (oil companies, exporters, ...)• Demand: Big players (oil companies, importers, wholesalers...)
Market behaviour• Oil Market: Very volatile + “Symmetric”• Int. Liq. Fuel Mkt: Less volatile + “Asymmetric” (rockets and
feathers)
M. Sebastião - Prices in the oil and oil product markets September 2012
29
1. LIQUID FUEL MARKET
DOMESTIC LIQUID FUEL MARKET
Domestic retail market• Supply: Big players (oil companies, importers,
wholesalers ...)• Demand: Small players (consumers, businesses, ...)
Domestic retail market follows international wholesale market closely• With lags• Same asymmetric behaviour (rockets and feathers)
Statistical and econometric analysis required to understand lags and
asymmetric behaviour
Volume business with narrow margins
M. Sebastião - Prices in the oil and oil product markets September 2012
30
1. LIQUID FUEL MARKET
OIL MARKET & INTERNATIONAL LIQUID FUEL MKT
Medium and long-term• International liquid fuel market follows oil market• Quasi-perfect relationship with stable lags
Short-term• Less perfect relationship• Pressure of other oil derivative markets• Pressure of other geographical markets • Lags and asymmetries when prices go up or down
M. Sebastião - Prices in the oil and oil product markets September 2012
31
1. LIQUID FUEL MARKET
LIQUID FUEL MKT: INTERNATIONAL & DOMESTIC
Short, medium and long-term
• Quasi-perfect relationship
• Lags + Asymmetries (rockets and feathers)
• Similar behaviour even in periods of great volatility
M. Sebastião - Prices in the oil and oil product markets September 2012
32
LIQUID FUEL MARKET
International prices (Platts, Rotterdam or Lavera)
International “location spread” or “location premium” for each
refinery and each product
Ex-refinery prices cannot be above or below Platts + spread
All market players know everything about prices and spreads
in real time
Incentives to engage in illegal price arrangements?
1. LIQUID FUEL MARKET
M. Sebastião - Prices in the oil and oil product markets September 2012
33
LOCATION SPREAD (OR PREMIUM)
“World Scale”: two-entry tables, harbour to harbour, “World
Scale Indicators for Maritime Transportation of Oil Products”
set by IMO (International Maritime Organisation)
Daily maritime freight quotations known to all market players
in real time
Each harbour “location spread” is a function of distance to
“price centre;” harbour features; and daily freight quotations
and insurance premiums
1. LIQUID FUEL MARKET
M. Sebastião - Prices in the oil and oil product markets September 2012
34
DOMESTIC MARKET: TWO MAJOR CONSTRAINTS
Refineries and wholesale storage subject to two major
constraints
• “Prudential” – Mandatory stock holdings
• “Fiscal” – Bonded warehouses
(on-site fuel tax collection)
These constraints have nothing to do with competition
concerns
1. LIQUID FUEL MARKET
M. Sebastião - Prices in the oil and oil product markets September 2012
35
MANDATORY STOCK HOLDINGS
Mandatory stock holdings, set for each product and supervised by
IEA (International Energy Agency); refineries can benefit from
“crude equivalents” to balance stock holdings of different products
Mandatory stock holdings based on previous year average daily sales:
• Strategic stock holdings (30 days, 1/3)• Security stock holdings (60 days, 2/3)
Operational stocks (10 days)
Total stocks: 30 + 60 + 10 days
First year mandatory stock holdings based on business plan revised
quarterly
1. LIQUID FUEL MARKET
M. Sebastião - Prices in the oil and oil product markets September 2012
36
1. LIQUID FUEL MARKET
DOMESTIC LIQUID FUEL MARKET
Main points Tradable goods market Cannot be seen in isolation from international markets
Note
Perhaps the most important fact concerning competition in the last three years in Portugal and Spain is that 3 major players – Shell, Esso and Agip – all decided to move out of the Iberian peninsula. NCA role in this: none!
M. Sebastião - Prices in the oil and oil product markets September 2012
37
DOMESTIC LIQUID FUEL MARKET
Other features:
a. Non-price competition is also important
b. Non-price competition: scale, quality, scope, …
c. At a gasoline station, 1 litre of water may cost more than 1 litre
of gasoline or diesel
d. Demand-price elasticity
e. Environmental concerns: non-renewable resource &
CO2 emissions (a major problem for new refineries)
1. LIQUID FUEL MARKET
M. Sebastião - Prices in the oil and oil product markets September 2012
38
ROCKETS AND FEATHERS
1. LIQUID FUEL MARKET
M. Sebastião - Prices in the oil and oil product markets September 2012
39
1. LIQUID FUEL MARKET
Lags and Asymmetries in Price Adjustments
Rockets and feathers: prices rise like rockets and fall like feathers
“Adjustment delay” and “adjustment amplitude” until full convergence to price change is completed
Most visible in periods of high market volatility; almost invisible in normal times (much ado about nothing …)
Serious econometric analysis is required to understand rockets and feathers
Simpler but rigorous analysis: weekly price changes
M. Sebastião - Prices in the oil and oil product markets September 2012
40
1. LIQUID FUEL MARKET
Lags and Asymmetries in Price Adjustments
2 transmission mechanisms• Brent Platts and Platts Domestic pre-tax prices
• Brent Platts is key to understand rockets and feathers
• Domestic prices follow Platts
Beware of emotional reactions
September 2012
41M. Sebastião - Prices in the oil and oil product markets
Volatility of international liquid fuel prices
Alternative domestic price regimes
a) Administrative fixed price Budget deficit + domestic consumers decoupled from international
prices and cushioned from market volatility + single price for whole country + total absence of price competition between companies and in places where costs may be higher or lower
b) Maximum indexed price Tendency for prices to converge towards the maximum Less reaction among consumers to market volatility
c) Market price Volatile but rational if there is no “market failure”
d) Regulatory model Key to allocate costs between “user-payer” and “taxpayer”
1. LIQUID FUEL MARKET
September 2012
42M. Sebastião - Prices in the oil and oil product markets
1. LIQUID FUEL SECTOR
2. FOREIGN TRADE
3. BRENT, PLATTS AND DOMESTIC PRICES
4. WEEKLY PRICE CHANGES
5. PRICES IN PORTUGAL AND EUROPE
6. VALUE CHAIN
7. PRICES PER OPERATOR
8. MOTORWAY PRICES
CONTENTS
September 2012
43M. Sebastião - Prices in the oil and oil product markets
2. FOREIGN TRADE
Q1/06
Q2/06
Q3/06
Q4/06
Q1/07
Q2/07
Q3/07
Q4/07
Q1/08
Q2/08
Q3/08
Q4/08
Q1/09
Q2/09
Q3/09
Q4/09
Q1/10
Q2/10
Q3/10
Q3/10
Q1/11
Q2/11
Q3/11
Q4/11
Q1/12
3.0%
3.5%
4.0%
4.5%
5.0%
5.5%
6.0%
6.5%
7.0%
7.5%
Portugal: oil and liquid fuelsMo = Imports of oil and liquid fuels, GDP = Gross
Domestic Product
Mo/GDP
September 2012
44M. Sebastião - Prices in the oil and oil product markets
2. FOREIGN TRADE
Q1/06
Q2/06
Q3/06
Q4/06
Q1/07
Q2/07
Q3/07
Q4/07
Q1/08
Q2/08
Q3/08
Q4/08
Q1/09
Q2/09
Q3/09
Q4/09
Q1/10
Q2/10
Q3/10
Q3/10
Q1/11
Q2/11
Q3/11
Q4/11
Q1/12
-14%
-12%
-10%
-8%
-6%
-4%
-2%
0%
2%
Portugal: oil and liquid fuelsOB = Balance of oil and liquid fuels, CA = Current
Account
OB/GDP CA/GDP (CA-OB)/GDP
September 2012
45M. Sebastião - Prices in the oil and oil product markets
2. FOREIGN TRADE
1T/06
2T/06
3T/06
4T/06
1T/07
2T/07
3T/07
4T/07
1T/08
2T/08
3T/08
4T/08
1T/09
2T/09
3T/09
4T/09
1T/10
2T/10
3T/10
4T/10
1T/11
2T/11
3T/11
4T/11
1T/12
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
Portugal: Deflator of imports of oil and liquid fuelsYear-on-year rate of change
Deflactor
September 2012
46M. Sebastião - Prices in the oil and oil product markets
Volatility of foreign trade reflects volatility in the international price of oil and liquid fuels (tradable goods)
1) Oil and liquid fuel imports /exports
2) Oil Balance of the Current Account (CA) of the Balance of Payments (BoP)
3) Year-on-year rates of change (volume and deflators)
2. FOREIGN TRADE
September 2012
47M. Sebastião - Prices in the oil and oil product markets
Volatility of foreign trade
Would it be reasonable to expect domestic prices of tradable goods not to react to fluctuations in the foreign trade bill essentially due to moves in international prices, which implied steep increases and decreases in the value of oil imports or in the balance of oil and liquid fuels ranging up to 2 to 3 percentage points of GDP in short periods of time (2 to 6 quarters)?
Note: 3% of GDP is the maximum budget deficit for any EU country under the Stability and Growth Pact
2. FOREIGN TRADE
September 2012
48M. Sebastião - Prices in the oil and oil product markets
Volatility of foreign trade
How can the domestic market in liquid fuels be kept on an even keel when there is extreme volatility in the international market? In other words, what is the best price regime for the country?
a) Administrative price regime
b) Maximum indexed price regime
c) Market price regime
2. FOREIGN TRADE
September 2012
49M. Sebastião - Prices in the oil and oil product markets
1. LIQUID FUEL SECTOR
2. FOREIGN TRADE
3. BRENT, PLATTS AND DOMESTIC PRICES
4. WEEKLY PRICE CHANGES
5. PRICES IN PORTUGAL AND EUROPE
6. VALUE CHAIN
7. PRICES PER OPERATOR
8. MOTORWAY PRICES
CONTENTS
September 2012
50M. Sebastião - Prices in the oil and oil product markets
3. BRENT, PLATTS AND DOMESTIC PRICES
Dec-0
7
Mar
-08
Jun-
08
Sep-0
8
Dec-0
8
Mar
-09
Jun-
09
Sep-0
9
Dec-0
9
Mar
-10
Jun-
10
Sep-1
0
Dec-1
0
Mar
-11
Jun-
11
Sep-1
1
Dec-1
1
Mar
-12
Jun-
1240
50
60
70
80
90
100
110
120
130
140
150
160Brent 1-month futures in € and $ and Exch. Rate $/€
Brent €/bbl Brent $/bbl
Ind
ex
10
0 =
De
ce
mb
er
20
07
September 2012
51M. Sebastião - Prices in the oil and oil product markets
3. BRENT, PLATTS AND DOMESTIC PRICES
Dec-0
7
Mar
-08
Jun-
08
Sep-0
8
Dec-0
8
Mar
-09
Jun-
09
Sep-0
9
Dec-0
9
Mar
-10
Jun-
10
Sep-1
0
Dec-1
0
Mar
-11
Jun-
11
Sep-1
1
Dec-1
1
Mar
-12
Jun-
1240
50
60
70
80
90
100
110
120
130
140
150
160
170
Brent 1-mth futures, Gasoline (Platts and APBT) in €
Portugal, APBT €/lt Platts €/lt
Ind
ex 1
00 =
Dec
emb
er 2
007
September 2012
52M. Sebastião - Prices in the oil and oil product markets
1. LIQUID FUEL SECTOR
2. FOREIGN TRADE
3. BRENT, PLATTS AND DOMESTIC PRICES
4. WEEKLY PRICE CHANGES
5. PRICES IN PORTUGAL AND EUROPE
6. VALUE CHAIN
7. PRICES PER OPERATOR
8. MOTORWAY PRICES
CONTENTS
September 2012
53M. Sebastião - Prices in the oil and oil product markets
4. WEEKLY PRICE CHANGES
Weekly price changes in 2010 (28 December 2009 - 27 December 2010)
Platts Platts Portugal Spain EU27
NWE FOB NWE FOB APBT APBT APBT
Brent Gasoline Diesel Gasoline Diesel Gasoline Diesel Gasoline Diesel Gasoline Diesel
US$/bbl €/bbl US$ cts/lt € cts/lt € cts /lt € cts/lt € cts/lt
Number of changes
Increases 31 29 27 30 27 30 35 35 29 34 34 35
Decreases 21 23 25 22 25 22 17 17 23 18 18 17
Nominal price change
D Cummulative 16.27 17.11 11.12 13.13 11.65 13.26 12.37 14.95 12.72 15.46 13.21 15.93
D Weekly
Maximum 4.40 4.29 4.28 3.59 3.75 2.73 2.40 1.65 2.13 2.54 2.72 2.13
Minimum -6.47 -3.65 -4.19 -4.53 -2.44 -2.74 -1.75 -1.24 -2.05 -2.11 -1.95 -1.80
Average
Increase 1.85 1.47 1.58 1.39 1.18 1.05 0.70 0.67 0.94 0.91 0.69 0.72
Decrease -1.95 -1.11 -1.26 -1.30 -0.81 -0.83 -0.72 -0.50 -0.63 -0.86 -0.57 -0.54
September 2012
54M. Sebastião - Prices in the oil and oil product markets
4. WEEKLY PRICE CHANGES
Number Max./Min. Average Cummulative changeIncreases 31 5.7% 2.3% 25.5%Decreases 21 -8.1% -2.4%
28-d
ez
18-ja
n8-
fev
1-m
ar
22-m
ar
12-a
br
3-m
ai
24-m
ai
14-ju
n5-
jul
26-ju
l
16-a
go6-
set
27-s
et
18-o
ut
8-no
v
29-n
ov
20-d
ez
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
BRENT: % change weekly price, US$/bbl28 December 2009 - 27 December 2010
September 2012
55M. Sebastião - Prices in the oil and oil product markets
4. WEEKLY PRICE CHANGES
28-d
ez
18-ja
n8-
fev
1-m
ar
22-m
ar
12-a
br
3-m
ai
24-m
ai
14-ju
n5-
jul
26-ju
l
16-a
go6-
set
27-s
et
18-o
ut
8-no
v
29-n
ov
20-d
ez
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
BRENT: % change weekly price, €/bbl28 December 2009 - 27 December 2010
Number Max./Min. Average Cummulative changeIncreases 29 6.8% 2.5% 27.4%Decreases 23 -5.8% -1.8%
September 2012
56M. Sebastião - Prices in the oil and oil product markets
4. WEEKLY PRICE CHANGES
28-d
ez
18-ja
n8-
fev
1-m
ar
22-m
ar
12-a
br
3-m
ai
24-m
ai
14-ju
n5-
jul
26-ju
l
16-a
go6-
set
27-s
et
18-o
ut
8-no
v
29-n
ov
20-d
ez
-8%-7%-6%-5%-4%-3%-2%-1%0%1%2%3%4%5%6%7%8%9%
PLATTS GASOLINE: % change weekly price, US$/lt 28 December 2009 2009 - 27 December 2010
Number Max./Min. Average Cummulative changeIncreases 27 8.1% 2.9% 25.0%Decreases 25 -7.5% -2.3%
September 2012
57M. Sebastião - Prices in the oil and oil product markets
4. WEEKLY PRICE CHANGES
28-d
ez
18-ja
n8-
fev
1-m
ar
22-m
ar
12-a
br
3-m
ai
24-m
ai
14-ju
n5-
jul
26-ju
l
16-a
go6-
set
27-s
et
18-o
ut
8-no
v
29-n
ov
20-d
ez
-6%-5%-4%-3%-2%-1%0%1%2%3%4%5%6%7%8%9%
PLATTS GASOLINE: % change weekly price, €/lt 28 December 2009 - 27 December 2010
Number Max./Min. Average Cummulative changeIncreases 27 8.7% 2.9% 28.4%Decreases 25 -5.8% -1.9%
September 2012
58M. Sebastião - Prices in the oil and oil product markets
4. WEEKLY PRICE CHANGES
28-d
ez
18-ja
n8-
fev
1-m
ar
22-m
ar
12-a
br
3-m
ai
24-m
ai
14-ju
n5-
jul
26-ju
l
16-a
go6-
set
27-s
et
18-o
ut
8-no
v
29-n
ov
20-d
ez
-4%
-3%
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
EU27, GASOLINE: % change weekly APBT, €/lt28 December 2009 - 27 December 2010
Number Max./Min. Average Cummulative changeIncreases 34 5.9% 1.3% 27.4%Decreases 18 -3.5% -1.1%
September 2012
59M. Sebastião - Prices in the oil and oil product markets
4. WEEKLY PRICE CHANGES
28-d
ez
18-ja
n8-
fev
1-m
ar
22-m
ar
12-a
br
3-m
ai
24-m
ai
14-ju
n5-
jul
26-ju
l
16-a
go6-
set
27-s
et
18-o
ut
8-no
v
29-n
ov
20-d
ez
-4%
-3%
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
PORTUGAL, GASOLINE: % change weekly APBT, €/lt28 December 2009 - 27 December 2010
Number Max./Min. Average Cummulative changeIncreases 35 4.2% 1.3% 23.7%Decreases 17 -3.0% -1.3%
September 2012
60M. Sebastião - Prices in the oil and oil product markets
4. WEEKLY PRICE CHANGES28
-dez
18-ja
n
8-fe
v
1-m
ar
22-m
ar
12-a
br
3-m
ai
24-m
ai
14-ju
n
5-jul
26-ju
l
16-a
go
6-se
t
27-s
et
18-o
ut
8-no
v
29-n
ov
20-d
ez
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
PLATTS DIESEL: % change weekly price, US$/lt 28 December 2009 2009 - 27 December 2010
Number Max./Min. Average Cummulative changeIncreases 30 6.5% 2.5% 30.2%Decreases 22 -7.8% -2.3%
September 2012
61M. Sebastião - Prices in the oil and oil product markets
4. WEEKLY PRICE CHANGES
28-d
ez
18-ja
n8-
fev
1-m
ar
22-m
ar
12-a
br
3-m
ai
24-m
ai
14-ju
n5-
jul
26-ju
l
16-a
go6-
set
27-s
et
18-o
ut
8-no
v
29-n
ov
20-d
ez
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
PLATTS DIESEL: % change weekly price, €/lt 28 December 2009 - 27 December 2010
Number Max./Min. Average Cummulative changeIncreases 30 6.0% 2.5% 32.2%Decreases 22 -5.9% -1.9%
September 2012
62M. Sebastião - Prices in the oil and oil product markets
4. WEEKLY PRICE CHANGES
28-d
ez
18-ja
n8-
fev
1-m
ar
22-m
ar
12-a
br
3-m
ai
24-m
ai
14-ju
n5-
jul
26-ju
l
16-a
go6-
set
27-s
et
18-o
ut
8-no
v
29-n
ov
20-d
ez
-4%
-3%
-2%
-1%
0%
1%
2%
3%
4%
5%
EU27, DIESEL: % change weeekly APBT in €/lt28 December 2009 - 27 December 2010
Number Max./Min. Average Cummulative changeIncreases 35 4.4% 1.3% 31.4%Decreases 17 -3.1% -1.0%
September 2012
63M. Sebastião - Prices in the oil and oil product markets
4. WEEKLY PRICE CHANGES
28-d
ez
18-ja
n8-
fev
1-m
ar
22-m
ar
12-a
br
3-m
ai
24-m
ai
14-ju
n5-
jul
26-ju
l
16-a
go6-
set
27-s
et
18-o
ut
8-no
v
29-n
ov
20-d
ez
-4%
-3%
-2%
-1%
0%
1%
2%
3%
4%
5%
PORTUGAL, DIESEL: % change weekly price APBT in €/lt28 December 2009 - 27 December 2010
Number Max./Min. Average Cummulative changeIncreases 35 3.0% 1.1% 26.3%Decreases 17 -2.0% -0.8%
September 2012
64M. Sebastião - Prices in the oil and oil product markets
1. LIQUID FUEL SECTOR
2. FOREIGN TRADE
3. BRENT, PLATTS AND DOMESTIC PRICES
4. WEEKLY PRICE CHANGES
5. PRICES IN PORTUGAL AND EUROPE
6. VALUE CHAIN
7. PRICES PER OPERATOR
8. MOTORWAY PRICES
CONTENTS
M. Sebastião - Prices in the oil and oil product markets September 2012
65
Comparison between prices in the EU27 Average price after tax (APAT) Average price before tax (APBT) Maximum, minimum, EU27 average: APAT, APBT, Tax burden Portugal and Spain
Main conclusion Domestic prices in Portugal compare well with the average for
Europe, usually on the first quartile, never maximum or minimum Ranking would improve if APAT reported to Brussels include
discounts, which are a widespread practice in Portugal
5. PRICES IN PORTUGAL AND EUROPE
September 2012
66M. Sebastião - Prices in the oil and oil product markets
5. PRICES IN PORTUGAL AND EUROPE
Source: European Commission
Q1/07
Q2/07
Q3/07
Q4/07
Q1/08
Q2/08
Q3/08
Q4/08
Q1/09
Q2/09
Q3/09
Q4/09
Q1/10
Q2/10
Q3/10
Q3/10
Q1/11
Q2/11
Q3/11
Q4/11
0.6
0.8
1.0
1.2
1.4
1.6
1.8
Gasoline: APAT (quarterly average)
Max.
Por-tugal
Spain
EU27
Min.
In e
uro
s
September 2012
67M. Sebastião - Prices in the oil and oil product markets
5. PRICES IN PORTUGAL AND EUROPE
Source: European Commission
Q1/07
Q2/07
Q3/07
Q4/07
Q1/08
Q2/08
Q3/08
Q4/08
Q1/09
Q2/09
Q3/09
Q4/09
Q1/10
Q2/10
Q3/10
Q3/10
Q1/11
Q2/11
Q3/11
Q4/11
0.6
0.8
1.0
1.2
1.4
1.6
1.8
Diesel: APAT (quarterly average)
Max.
Portugal
Spain
EU27
Min.
In e
uro
s
September 2012
68M. Sebastião - Prices in the oil and oil product markets
5. PRICES IN PORTUGAL AND EUROPE
Source: European Commission
Q1/07
Q2/07
Q3/07
Q4/07
Q1/08
Q2/08
Q3/08
Q4/08
Q1/09
Q2/09
Q3/09
Q4/09
Q1/10
Q2/10
Q3/10
Q3/10
Q1/11
Q2/11
Q3/11
Q4/11
0.2
0.3
0.4
0.5
0.6
0.7
0.8
Gasoline: APBT (quarterly average)
Max.
Portugal
Spain
EU27
Min.
In e
uro
s
September 2012
69M. Sebastião - Prices in the oil and oil product markets
5. PRICES IN PORTUGAL AND EUROPE
Source: European Commission
Q1/07
Q2/07
Q3/07
Q4/07
Q1/08
Q2/08
Q3/08
Q4/08
Q1/09
Q2/09
Q3/09
Q4/09
Q1/10
Q2/10
Q3/10
Q3/10
Q1/11
Q2/11
Q3/11
Q4/11
0.3
0.4
0.5
0.6
0.7
0.8
0.9
Diesel: APBT (quarterly average)
Max.
Portugal
Spain
EU27
Min.
In e
uro
s
September 2012
70M. Sebastião - Prices in the oil and oil product markets
Retail price in Portugal and Spain
1) Retail price in Portugal and Spain: difference almost all because of tax
2) Fuel Tax and VAT both lower in Spain
3) Fuel Tax Portugal close to the average for Europe Spain has one of the lowest tax levels in Europe
5. PRICES IN PORTUGAL AND EUROPE
September 2012
71M. Sebastião - Prices in the oil and oil product markets
1. LIQUID FUEL SECTOR
2. FOREIGN TRADE
3. BRENT, PLATTS AND DOMESTIC PRICES
4. WEEKLY PRICE CHANGES
5. PRICES IN PORTUGAL AND EUROPE
6. VALUE CHAIN
7. PRICES PER OPERATOR
8. MOTORWAY PRICES
CONTENTS
September 2012
72M. Sebastião - Prices in the oil and oil product markets
6. VALUE CHAIN
Refinery Logistics Retail Tax APAT0%
20%
40%
60%
80%
100%
Gasoline: Breakdown of APAT (2011)
September 2012
73M. Sebastião - Prices in the oil and oil product markets
6. VALUE CHAIN
Refinery Logistics Retail Tax APAT0%
20%
40%
60%
80%
100%
Diesel: Breakdown of APAT(2011)
September 2012
74M. Sebastião - Prices in the oil and oil product markets
Elements scrutinised by the PCA
1) Logistics (storage + transport), gasoline, diesel Around € 0.02 / litre
2) Retail, gasoline and diesel Around 0.12 – 0.14 €/ lt Approximately 45% / 55% for costs and retail margin
6. VALUE CHAIN
September 2012
75M. Sebastião - Prices in the oil and oil product markets
Elements scrutinised by the PCA
3) Starts at ex-refinery prices (tradable goods)
4) Around 10% of the value chain
6. VALUE CHAIN
September 2012
76M. Sebastião - Prices in the oil and oil product markets
1. LIQUID FUEL SECTOR
2. FOREIGN TRADE
3. BRENT, PLATTS AND DOMESTIC PRICES
4. WEEKLY PRICE CHANGES
5. PRICES IN PORTUGAL AND EUROPE
6. VALUE CHAIN
7. PRICES PER OPERATOR
8. MOTORWAY PRICES
CONTENTS
September 2012
77M. Sebastião - Prices in the oil and oil product markets
7. PRICES PER OPERATOR
Portugal: Market shares
Number of service stations Sales in volume
2008 2009 2010 2008 2009 2010 *
Oil companies
Galp 32% 31% 30% [40% / 45%] [35% / 40%] [30% / 35%]
Repsol 17% 16% 16% [10% / 15%] [15% / 20%] [15% / 20%]
BP 13% 12% 12% [15% / 20%] [15% / 20%] [15% / 20%]
Cepsa/Total 11% 10% 10% [5% / 10%] [5% / 10%] [5% / 10%]
Sub-total 1 73% 69% 68% 81% 75% 73%
Independents 21% 25% 25% 7% 9% 9%
Supermarkets 6% 6% 7% 12% 16% 18%
Sub-total 2 27% 31% 32% 19% 25% 27%
TOTAL 100% 100% 100% 100% 100% 100%
* First three quarters
September 2012
78M. Sebastião - Prices in the oil and oil product markets
7. PRICES PER OPERATOR
Portugal: Market shares
Type of service stations
2007 2008 2009 2010 *
COCO 31% 32% 31% 26%
CODO 41% 40% 41% 45%
DODO 28% 28% 28% 29%
Total 100% 100% 100% 100%
* First three quarters
M. Sebastião - Prices in the oil and oil product markets September 2012
79
7. PRICES PER OPERATOR
COMPETITION ASSESSMENT
Analysis has focused on the existence of circumstantial evidence that could lead to the initiation of proceedings on
• Concerted practices among oil companies operating in Portugal• Abuse of dominant position by GALP (the Portuguese oil
company and the major player in the domestic market)
Assessment of contracts between oil companies operating in Portugal and between oil companies and retailers
M. Sebastião - Prices in the oil and oil product markets September 2012
80
7. PRICES PER OPERATOR
CONCERTED PRACTICES BETWEEN OIL COMPANIES
Four factors led to the perception among the general public that there are
concerted practices between oil companies or abuse of dominant position:
1) Similar prices charged by various oil companies
2) Price increases by various oil companies
3) News and comments in the media (beware of the so-called experts …)
4) Higher prices in Portugal than in Spain
M. Sebastião - Prices in the oil and oil product markets September 2012
81
7. PRICES PER OPERATOR
CONCERTED PRACTICES BETWEEN OIL COMPANIES
Two factors tend to be ignored by the so-called experts, opinion makers and
the public at large when assessing liquid fuel prices:
1) The two price transmission mechanisms
2) The exchange rate effect
M. Sebastião - Prices in the oil and oil product markets September 2012
82
PARALLEL CONDUCT
Article 101, §1 TFEU (Treaty of Lisbon) (Prohibited Practices)
Unlawful if it can be shown that it results from • Agreement between undertakings• Concerted practices• Decision of association of undertakings
7. PRICES PER OPERATOR
M. Sebastião - Prices in the oil and oil product markets September 2012
83
PARALLEL CONDUCT
Parallel conduct cannot be regarded as furnishing proof of concerted
practices unless such practices constitute the only plausible
explanation for such conduct
7. PRICES PER OPERATOR
M. Sebastião - Prices in the oil and oil product markets September 2012
84
PARALLEL CONDUCT
The information obtained cannot be seen as conclusive evidence that
the parallel conduct is the result of unlawful behaviour between two
or more oil companies; instead it tends towards the conclusion that
companies adapt intelligently to the existing and anticipated market
conditions and the conduct of their competitors
Note: • Price levels between the oil companies are not fully aligned• The dates of price changes, though close, are frequently different
7. PRICES PER OPERATOR
M. Sebastião - Prices in the oil and oil product markets September 2012
85
ABUSE OF DOMINANT POSITION
Article 102 TFEU (Treaty of Lisbon)
Case law in the European Court of Justice:
a. Has defined the concept of excessive price on a case-by-case
basis and always in a restrictive way; and
b. Has tried to avoid confusion between competition law and price
regulation
7. PRICES PER OPERATOR
M. Sebastião - Prices in the oil and oil product markets September 2012
86
ABUSE OF DOMINANT POSITION
The articles mentioned in the previous slide prohibit abuse, not the
mere holding of such a dominant position
Assessment has focused on two aspects:
a. Excessive pricing
b. Barriers to entry
7. PRICES PER OPERATOR
M. Sebastião - Prices in the oil and oil product markets September 2012
87
ABUSE OF DOMINANT POSITION
Taking into account all the information available:
a. It has not been possible to find evidence of more than a
reasonable similarity between the economic value of a product
provided in both wholesale and retail markets, given the
operating costs, especially the rise in cost of the Brent input.
b. It has not been possible to find evidence of excessive pricing that
could be imputed to the dominant firm in the market
7. PRICES PER OPERATOR
M. Sebastião - Prices in the oil and oil product markets September 2012
88
ASSESSMENT OF CONTRACTS
Vertical restrictions• Price fixing to the final consumer?• Long-term exclusivity contracts?
Dominant position• Barriers to entry, other than “prudential” or “fiscal”?
Economic dependency• Abusive exploitation of economic dependence of suppliers or
clients in case of absence of an equivalent alternative?
7. PRICES PER OPERATOR
September 2012
89M. Sebastião - Prices in the oil and oil product markets
Parallel conduct and/or similar prices
1) Such conduct does not necessarily derive from a cartel or an
agreement between companies, as set down in Art. 101.(1) TFEU.
It may stem from behaviour acceptable in law, as competitive strategies
from adaptation or response to market conditions
It cannot therefore be inferred on the spot that there is a cartel, simply
because there is parallel behaviour visible in conduct and/or prices.
7. PRICES PER OPERATOR
September 2012
90M. Sebastião - Prices in the oil and oil product markets
Parallel behaviour and/or similar prices
2) European jurisprudence is clear on this issue :
Parallel behaviour leading to price convergence can only be a serious
indication of concerted action if it is possible to conclude, on the basis of
an analysis of the market in question, that such parallel behaviour
would only come about if there is collusion between the companies that
operate in that market.
7. PRICES PER OPERATOR
September 2012
91M. Sebastião - Prices in the oil and oil product markets
Parallel conduct and/or similar prices
3) Economic theory explains why it is not possible to infer that a cartel
exists without previously verifying whether the parallel behaviour does
not stem from companies adapting to market conditions, one element
of which is the price, and if that price is known to all the operators in
the market, there is no illicit collusion over prices.
Such adaptation does not breach competition rules. As such, it is within the law and does not warrant sanctions.
In particular, charging similar prices in the case of homogeneous products such as liquid fuels, where prices are known to all market operators, does not constitute a breach of competition law.
7. PRICES PER OPERATOR
September 2012
92M. Sebastião - Prices in the oil and oil product markets
Parallel conduct and/or similar prices
4) In the liquid fuel market, there is information on prices in the public
domain and in the light of this, there is no need for concerted action
among operators if companies are looking to know the prices charged
by their competitors.
Retail prices in all service stations across the country are available on the DGEG website, which means that consumers and market operators can find out from any computer the prices charged by the competing companies.
Where the motorways are concerned, there is information available on panels giving the prices in the next and then the following one or two service stations. This gives consumers the chance to see the prices charged by different oil companies and their decision to stop or not to stop at a particular service station
puts pressure on suppliers to reduce the price at the most expensive outlet.
7. PRICES PER OPERATOR
September 2012
93M. Sebastião - Prices in the oil and oil product markets
Parallel behaviour and/or similar prices
5) The parallel behaviour that can be seen results from individual
decisions of operators, and it is possible to see differences in timing, in
the number of changes and the amounts involved with each change, as
the following charts and tables show.
The parallel behaviour becomes more visible when average monthly or
quarterly figures are drawn up detailing the prices charged by the
various oil companies, independent operators and supermarket chains.
This information is made available later in the analysis.
But for the reasons already given, it is not possible to infer from an
analysis of these averages that there has been illicit behaviour, bearing
in mind the information in the public domain and the detailed analysis
of prices.
7. PRICES PER OPERATOR
September 2012
94M. Sebastião - Prices in the oil and oil product markets
How is it that supermarket chains can charge lower
prices than oil companies or independent operators?
One reason is that the liquid fuels business line results in synergies for the other
supermarket business lines, among them the number of customers and the chance to
dispense with part of the distribution margin from an additional business line. Apart
from this, there is an array of reasons connected with lower costs, among them
1) Lower location costs
2) Lower relative personnel costs
3) Smaller range of products
4) Economies of scale, even more as demand increase
7. PRICES PER OPERATOR
September 2012
95M. Sebastião - Prices in the oil and oil product markets
1. LIQUID FUEL SECTOR
2. FOREIGN TRADE
3. BRENT, PLATTS AND DOMESTIC PRICES
4. WEEKLY PRICE CHANGES
5. PRICES IN PORTUGAL AND EUROPE
6. VALUE CHAIN
7. PRICES PER OPERATOR
8. MOTORWAY PRICES
CONTENTS
September 2012
96M. Sebastião - Prices in the oil and oil product markets
Motorway prices have raised mistrust: why?
Because, following a recommendation of the PCA,
motorways have to display electronic panels with the prices
of two or three consecutive petrol stations
And in each panel the prices of the different petrol stations
are equal or very similar
8. MOTORWAY PRICES
September 2012
97M. Sebastião - Prices in the oil and oil product markets
Motorway prices mistrust
Equal or similar prices in each panel are difficult to
understand by the public at large, opinion makers and
politicians
Nevertheless, it is better understood in the context of a
simple question with a simple answer:
• In each panel, prices could be very different?
• The answer is no!
8. MOTORWAY PRICES
September 2012
98M. Sebastião - Prices in the oil and oil product markets
Motorway prices mistrust
Why in each panel prices could not be different?
• Hommogeneous products
• Informed consumers
• Would anyone stop at a petrol station with much higher prices?
Nevertheless, are there reasons for ex-ante competition concerns? No.
• Prices in any petrol station available to anyone online;
• Diferent prices in different panels in different motorways
8. MOTORWAY PRICES
September 2012
99M. Sebastião - Prices in the oil and oil product markets
Motorway prices mistrust
Is there any warranty that prices in each panel tend to be
the lowest rather than the highest?
• No, and that is the reason why the PCA continues monitoring the
situation.
But there are reasons why the lowest price should prevail
when petrol stations belong to different operators
No dominant operator in the motorway network; Recession of the
economy and declining demand for liquid fuels
8. MOTORWAY PRICES
September 2012
100M. Sebastião - Prices in the oil and oil product markets
APPENDIX 1 – Acronyms
CONTENTS
September 2012
101M. Sebastião - Prices in the oil and oil product markets
APBT Average price before tax
APAT Average price after tax
COCO Petrol station – Company owned, Company operated
CODO Petrol station – Company owned, Dealer operated
DODO Petrol station – Dealer owned, Dealer operated
DGEG Portuguese Directorate General for Energy and Mines
NCA National Competition Authority
PCA Portuguese Competition Authority
PAT Price after tax
Platts
CIF NWE Rotterdam price including cost, insurance and freight
FOB NWE Rotterdam price free on board
VAT Value added tax
ACRONYMS
Recommended