1. Micro Economics

2. Presentation Outline
Introduction
Analysis
Price Elasticity
Demand and Supply
Competition between Firms
Fixed and Variable Inputs

3. The Petroleum
Industry

4. Petroleum Industry
A supply chain of fossil fuels for
industrial and household
consumption

5. Petroleum Industry
Comprises of
- Exploration and Extraction of crude oil
- Refining of crude oil into distillate products
- Logistics and Retailing of distillate products

6. The Retail Petrol market sells petrol
to Motorists at petrol stations

7. Petroleum Industry
In Singapore, firms in the petroleum industry are
- Shell
- Exxon-Mobile ( Esso)
- Caltex Singapore
- Petroleum Company (SPC)

8. Petrol & Diesel

9. Car Wash
& Vehicle
Servicing

10. The BIGGEST
Petrol and
Oil refining company
in Singapore?

11. Shell – It’s History
• Set up Singapore’s first oil refinery in 1961
• Bukom Refinery is the largest Shell
refinery in the world
• Shell produces up to 500,000 barrels-per-
day of petrol ( enough to fill Olympic pool
31 times )

12. Analysis
The Petrol industry is an Oligopoly
Possesses these characteristics:
• Few large dominant firms
• Homogenous product
• Difficult barriers to entry

13. There are Only 4 petrol
companies in Singapore

14. Homogenous Product
• Petrol is a homogenous
commodity
• It is easy for competitors to
monitor individual firms’
prices.

15. Difficult Barriers to Entry
Due to shortage of land, there is less land
available for the allocation of petrol station
sites.
 Hence, the government charges high
land premiums for retail petrol sites.

16. Difficult Barriers to Entry
No. of Petrol Stations per Company
Player Number of Petrol Stations
ExxonMobil (Esso) 65
Shell 63
SPC 38
Chevron (Caltex) 33
Total 199

18. Interpretation
• The occasions of Price Changes
- July 5, 2008 ( Price increase )
- July 9, 2008 ( Price decrease )
• Shell initiated the reduction in petrol prices, other companies
followed
• Strong mutual interdependence between these large firms
• Practice the game “ follow the leader”
 Oligopoly model : Price Leadership

19. Evaluation of Price Elasticity
Change In Income

20. Price Elasticity – Inelastic demand
graphs

21. Various Market Structures
Perfect Monopolistic Oligopoly Monopoly
Competition Competition
Number Large Many Few One
of Sellers
Type of Homogenous Differentiated Homogeneo Unique
product us or
Differentiate
d product
Entry Very easy Easy Difficult Impossible
condition

22. Factors affecting Demand and
Supply
• Agreement among Producers
• Changes in Income
• Number of Suppliers
• Changes in the Complements in
Production

24. Agreement among Producers
All of Singapore’s Crude Oil is supplied
from The Middle East

25. Tensions in the Lybia, affects us
directly

26. The Price Increase

27. The Price Decrease

29. Change in Income
39% increase in Supplies

30. Economic Recovery
Increased Demand for
Petrol

31. Change in Income

33. Political Unrest in Lybia

34. Caused Companies to
withdraw from Lybia

35. Number of Suppliers
This causes supply curve to shift left
Leads to a shortage of oil
Oil prices will increase

36. Changes in the Complements in
Production
Demand and Supply of petrol is dependent
on Supply of Crude oil
When oil prices increase, quantity supplied
of petrol increases as well

37. Changes in the Complements in
Production

38. Fixed and Variable inputs of Petrol Firms
Fixed Input : Land, rental
Variable Input: Labour, Wages, inventories,
number of furniture
Petrol firms are running in the short run

39. Competition between firms
SPC: Credit cards discount for petrol purchase: SPC&U Card
members enjoy 10% +
1) POSB everyday card: 5%
2) DBS/POSB Credit cards: 5%
3) AMEX Credit Cards: 6% ( Fridays, Saturdays and Sundays )
Shell: Accumulate $388 worth of Shell Fuelsave or Shell V-power
receipts at selected Shell stations to redeem a premium Ferrari
Backpack (worth $129).

40. Conclusion
Market Structure : Oligopoly
Price Elasticity : Price Inelastic
Factors
- Agreement among Producers
-
- Changes in Income
- Number of Suppliers
- Changes in Complements