In the past two weeks, petrol went up by 14 cents. How does the gomen decide on a price?

“Cause I can’t get enough, I can’t get enough. I can’t stay on the ground, whoa!” – RON97. Source

We poke some accountants with them, and the accountants yell out a price. Source

Unfortunately, MOPS prices aren’t available to the general public, as it’s a paid service. But if you really, really want to check out the MOPS data, you can try referring to the Australian Institute of Petroleum’s website. The prices quoted here are in Australian Dollars though, so if you want to try calculating the petrol price yourself, you’ll have to convert it to Ringgit first.

But just knowing the MOPS value won’t do much in determining the current fuel price. To do so, there’s a formula and several other things you need to factor in, and this process falls under something we call the Automatic Pricing Mechanism (APM).

Break out the sempoas, it’s time for some math!

AWWWW YIISSSSSS!!! Source

Using the APM formula, we’ll be introduced to a few other numbers:

1. Operational costs: The cost of operation, inclusive of transport costs. Set by the gomen at 9.54 cents per liter.
2. Margin of profit for oil companies: Set by the gomen to 5 cents per liter for petrol.
3. Margin of profit for fuel retailers: Set by the gomen to 12.19 cents per liter.
4. Alpha: The difference between MOPS price and the actual price sold by fuel companies. Set at 5 cents per liter.

Source

As can be seen, of the five components needed to determine oil prices, only the MOPS averages are constantly changing according to the market. The formula is pretty easy, so we weren’t joking when we told you to break out your sempoa. Just add these five things together:

current MOPS price + operational cost + oil companies’ margin + fuel retailer’s margin + alpha = FUEL PRICE

Or, to simplify, for RON95:

Current MOPS price in RM + 31.73 = Fuel Price in RM/liter

Now that the theory is over and done with, let’s move on to the practical stuff. To calculate the price of RON95 for this week (7 September to 13 September 2017), you have to refer to the MOPS rate for the previous week (31 August to 6 September). This is because MOPS is a type of swap, which means that each week’s MOPS value is like a prediction of what it’s gonna be the next week, so… just use the values from the week before the week you’re calculating for.

Then, you’ll have to convert the MOPS rate to the previous week’s ringgit value, as the MOPS value is in Australian Dollars. In this case, the exchange rate can be estimated to be 3.41.

54.7 × 3.41 =186.53 cents

Substituting that into the above equation will give us:

186.53 + 31.73 = 218.26 cents / RM 2.18 per liter

This would mean that the price for RON95 is actually RM2.18 per liter, which is two cents less from the price announced by the government, which is RM2.20.

Screengrabbed from an old movie on YouTube.

Fuel prices can also be tied to the current value of ringgit, as it’s also related to currency exchange rates. Here’s a nifty way to predict fuel prices with respect to changes in MOPS and the ringgit:

1. MOPS rises, Ringgit stays = Fuel prices rise.
2. MOPS stays, Ringgit rises = Fuel prices fall.
3. MOPS falls, Ringgit stays = Fuel prices fall.
4. MOPS rises, Ringgit falls = Fuel prices rise.
   

But here’s some bad news. There’s a chance that the method we used just now… may not the method the gomen’s been using all this while. Despite requests from various parties, as of the time of this article, the government has yet to reveal how they really calculate fuel prices.

Perhaps all we need is a lil’ bit of transparency

That’s why you get an E for Add Maths. Source

Before this, economists had pushed the government to reveal how fuel prices are calculated, but the government is still shy shy and refused to show us the jalan kerja. We’re still waiting for that fuel price formula promised last June, btw.

On another note, a group of scientists from the USM managed to invent a capacitor that can reduce petrol use by up to 46%, and you can read about that and a few other sweet Malaysian inventions here. It is hoped that this device can soon help to reduce the daily living cost of Malaysians. At the same time, what we can do is to be smart in handling our finances to make it through these trying economic times.

[You can also read about Malaysia’s fuel prices and how our country’s fuel prices are determined in more detail here.]