Local petroleum retailers responded to a government deadline yesterday by agreeing to adopt a flexible pricing mechanism to reflect fluctuations in global oil prices, but there will not be any immediate price reductions, according to a Commerce Ministry spokesperson.

The government said yesterday that the new directive would involve the monitoring of oil import costs and that if there was a drop in these costs – as a result of dropping global prices – private companies, having agreed to this new mechanism, would be expected to lower prices at the pump, or else face action.

“They [oil companies] have agreed to use a flexible pricing mechanism,” said Ken Ratha, spokesman for the Commerce Ministry. “But the possibility that how much they can implement this mechanism, we will monitor later.”

“If they don’t follow with what they have promised, we will have other actions.”

However, Ratha did not specify what kind of action would be taken against erring companies.

Hiroshi Suzuki, chief economist at the Business Research Institute for Cambodia, said the government oversight was critical in ensuring stable supply and pricing in the oil sector, as well as ensuring competitive pricing.

“I would like to appreciate the timely intervention by the government to the Cambodian fuel market by stimulating the competition among the distributors,” Suzuki said.

He added that it was also the right time for Cambodia to build strategic oil reserves in light of the low oil prices in the global market. These reserves, he said, will help cushion any future drastic fluctuations in oil prices.

“I am expecting the government effort, with good cooperation of private sector, for the strengthening of strategic reserve of oil to respond the possible drastic fluctuation of international oil market in future,” he said.

Oil retailer Chevron considers a wide array of factors before deciding on prices at the pump, including currency exchange rates, inventory levels, market demand, as well as reaction from their competitors to market forces, according to Chanlek Than, a brand and communication specialist at Chevron’s retail business Caltex.

“The fluctuation of international crude and finished product prices will inevitably affect the local retail pump prices,” Than said.

For their part, Than said, Chevron use their own price adjustment assessment, as well as closely monitor “the competitive landscape of the fuel market in Cambodia”.

Sovattey Sorn, marketing and communication manager at Total Cambodia, said Total has complied with government directives in the past, however could not authorised to comment specifically on the new mechanism discussed this week.

“We participate regularly in the meetings organised by government authorities. We comply with government regulation and respond to requests promptly,” she said.