Economists doubt fuel prices can go lower

 freemalaysiatoday.com

G Vinod | January 13, 2011

 

Even at RM1.90 per litre, Malaysia's fuel price is still considered the cheapest among oil-exporting countries.

PETALING JAYA: Several economists cast doubt over views presented by two academicians that Malaysia can lower its fuel prices to as low as 30 sen per litre.
Professor Hamid Yeop and economist Amir Hussin Baharuddin on Monday said that as a petroleum-producing nation, Malaysia rakes in higher profits due to the rise in oil prices.
They said most oil-producing nations fixed their domestic oil prices lower than the international market price, and Malaysia can also easily follow suit.
“A research in 2008 showed that while world fuel prices are determined by market forces, in Malaysia, prices are not adjusted accordingly and has never fallen,” they told a Malay daily.
Economist Yeah Kim Leng said the government has in fact moved to adjust domestic oil prices, citing the two separate schemes for RON95 and RON97 fuel.
“While the RON97 price is determined by the global oil market, the government is subsidising between 30 and 40 sen per litre for RON95,” said Yeah.
He added that currently, Malaysia’s RON 95, which is sold at RM1.90 per litre, is still ranked among the top 20 cheapest in the world.
“Countries that offer RON95 prices for less than a ringgit per litre are among the world’s top oil- producing countries with huge oil reserves.
“However, our oil reserve only stands at 0.3 % of the world’s oil reserves compared with 29% for Saudi Arabia.”
He said that Malaysia’s higher returns from soaring fuel prices are channelled into the oil and gas industries.
“The government, therefore, would still need to fork out money to subisidise its domestic oil prices,” said Yeah.
He agreed with the government’s recent subsidy rationalisation move, saying it would not only help the government to cut cost but also promote energy efficiency among consumers.
To alleviate the burden of the lower-income group due to the fuel price hikes, Yeah suggested that the government channel subsidies directly to this group.
“The government is working on a mechanism to help them. Currently, only the middle- and the higher-income groups are benefiting from the subsidies,”he said.
Market trend
Another economist, Cheong Kee Cheok, of Universiti Malaya, cast doubts on the two academicians’ research findings.
“The market price for petrol (unsubsidised) is made up of the cost of extraction and the cost of bringing what is extracted to the market as petrol.
“The extraction, refining and transport costs have to be added on even if oil companies do not make profits from doing all these. I hope the professors took into account all this in their research.”
He added that he was unconvinced by the argument that other oil-producing nations charge their consumers very low prices as justification for Malaysia to lower its domestic fuel prices.
“Take, the US, a major oil-exporting nation. It sells its domestically made cars cheapers than we do. Any economist must know that the point is how we manage our limited resources,” said Cheong.
Asian Strategy and Leadership Institute chairman, Ramon Navaratnam, said oil prices in Malaysia should move in tandem with the international market trend.
“It is basic supply and demand (situation). Malaysia has lower fuel prices due to its subsidies and the two experts cannot expect Petronas to sell fuel domestically at cost price if that was what they meant.
“In addition, you cannot increase subsidies anymore as the government needs to tackle its budget deficit which currently stands at nearly 6%.
“The best way to offset soaring petrol prices from affecting the lower-income group is to provide better infrastructure funding for the lower-income group,” said Ramon.
“The government should channel subsidies to provide better housing, healthcare, education and public transport.”

Petrol prices forcing parents to share school run

Nearly half of parents are thinking of sharing the school run in an attempt to cut down on the cost of running their cars, after petrol prices hit a fresh record.

By Harry Wallop, Consumer Affairs Editor 2:48PM GMT 11 Jan 2011

The average price of a litre of unleaded petrol climbed higher on Tuesday from 127.80p to 127.88p, edging ever closer to the equivalent of £6 a gallon (132p a litre).

The price has climbed steadily since the New Year, when first fuel duty was increased, and then a few days later the increased level of VAT came into force.

Consumers have been cutting back on driving – as they did during the fuel price spike of 2008. According to a poll by Halfords, the retailer, 44 per cent of parents say they are talking to friends about sharing the school run.

The survey also suggested that 78 per cent plan to drive less, with daily short trips to local shops the biggest casualty of the attempt to save on transport costs.

Figures from HM Revenue and Customs suggest that fuel consumption falls when the price of petrol increases. During December 4.28 billion litres of fuel – either unleaded petrol or diesel – was released for consumption, a fall of 4.48 billion in November. - The Telegraph

RON 97 price hike hits high-end users

The Star Online

November 3, 2010

PETALING JAYA: The five-sen hike of RON 97 petrol to RM2.15 per litre from yesterday has mostly affected a small group of luxury car owners and those who favour its performance capabilities compared to the more affordable RON 95 which is still sold at RM1.85 per litre.

Animation designer Joey Khor, 32, who drives a 3.5-litre Nissan Fairlady sports car, said he might have to sell his car if the petrol cost becomes too hard to bear.

“I am already spending RM150 for a full tank, which will last me around three to four days. That means RM300 in a week, and RM1,200 spent on petrol in a month,” he added.

Car mechanic Novie Ismail, 34, said he spends about RM400 a month on petrol for his three cars: Volvo 24 SE, Proton Satria and Charade Aura.

“I’ll just have to bear with the RON 97 price hike as I feel that RON 95 affects the performance of my cars. The engines sound rougher and generate less power,” he said.

Meanwhile, Petrol Dealers Association Malaysia president Datuk Hashim Othman said the price increase was a natural consequence of rising oil prices in the international market.

He estimated that about 75% to 80% of motorists were RON 95 users and would thus remain unaffected.

“Don’t be too upset by the controlled float (of RON 97), as the Government plays an important role in ensuring that the oil companies do not hike petrol prices drastically,” said Hashim, pointing out that RON 97 sells for around RM3.80 per litre in Thailand.

“The public should be aware that the Government does not impose any tax on the sale of RON 97 but does not subsidise it either,” he said.

The previous petrol price hike, which took effect on July 16, was part of the Government’s effort to save an estimated RM750 million a year.

Deputy Domestic Trade, Co-operatives and Consumerism Minister Datuk Rohani Abdul Karim told the Dewan Rakyat that the price increase reflected the global price increase of fuel and announcements would not be made in the future about price changes.

She added that a committee comprising officials from the Finance Ministry and her ministry would monitor and determine the price since RON 97 was subjected to a managed float.

Subsidy Rationalisation Gets Various Reaction

July 16, 2010 00:55 AM

KUALA LUMPUR, July 15 (Bernama)-- The subsidy rationalisation for several items such as sugar and fuel which was announced Thursday was welcomed by several non-governmental organisations (NGOs).

The president of the Malaysian Medical Association (MMA) Dr David Quek said the reduction in the sugar subsidy by 25 sen per kilo would give a positive effect to the people's health with the ensuing reduction in sugar consumption.

"There has been a significant increase in the number of diabetic patients. A study in 2006 found that between 14 and 15 per cent of Malaysians suffer from diabetes compared with seven to eight per cent 10 years ago," he said when contacted.

He said the increase clearly showed the declining state of health and that the people were less concerned about health care.

"As such, we support this increase for the sake of public health, and we hope the people can reduce sugar consumption," he said.

Federation of Sundry Goods Merchants Associations of Malaysia's president Lean Hing Chuan also expressed a similar sentiment like Dr David.

"When the government increases the price of sugar, people will consume less sugar and that will reduce diabetes cases," he said.

He added that despite the 25 sen 'adjustment' sugar price here is among the cheapest in the region compared with Thailand and Indonesia (RM3/kg) and Singapore (RM3.60/kg).

FOMCA president Datuk N. Marimuthu meanwhile, said the 5 sen increase for RON95 petrol would not really burden the consumers.

"We must welcome such initiatives if the money saved from subsidy is used for other beneficial purposes," he told Bernama when contacted here Thursday.

Marimuthu said Malaysians are still fortunate since petrol price in the country was still among the cheapest compared with India, Singapore, the Philippines or United Kingdom.

Persatuan Pengguna Islam Malaysia (PPIM) executive secretary Datuk Paduka Nadzim Johan said a transparent subsidy system must be put in place to ensure only those who are eligible for such benefits.

"We do not agree if subsidies, especially for gas, enjoyed by the rich too," said Nadzim.

Nadzim said the people must not continue to depend on subsidies for basic essential items and start looking for alternatives.

"We (Malaysia) and Thailand are almost equal. But why can't we grow our own vegetables like cabbage, chili or others instead of importing such items from other countries," he said.

-- BERNAMA

Malaysia CPI for June jumps 1.7pc

By Rupa Damodaran
rupabanerji@nstp.com.my
2010/07/22

MALAYSIA'S Consumer Price Index (CPI) for June grew 1.7 per cent year-on-year, in line with expectations, indicating the central bank may be done with raising its key interest rate.

Bank Negara Malaysia has raised the main interest rate three times this year as keeping the cost of borrowings at very low levels could stoke inflation.

The latest figures show that inflationary pressures in Malaysia are still mild, economists said.

The Statistics Department said yesterday the index expanded from 111.8 to 113.7 during the month, with food and non-alcoholic beverages posting a 2.7 per cent increase.

Compared with May, the index increased by 0.2 per cent while for the first half of the year, the CPI grew by 1.6 per cent.

Standard Chartered Bank economist Alvin Liew said food-related price increases were again the key contributor to the CPI in June from 1.6 per cent in May.

But HSBC Bank Asian economist Wellian Wiranto said the pace of the food price increases was rather mild and he expects seasonal factors like Ramadan and festivities to spark a temporary increase.

Economists don't think inflation would jump due to the recent increase in the price of sugar and petrol although they expect the "modest" subsidy cuts to continue this year.

"Although last week's move signals the government's intention in removing subsidies, the pace that they adopted also indicates to us that they are much more likely to proceed in 'baby steps' rather than in a 'great leap forward' fashion - not least because they are ever-vigilant on the potential political repercussions," Wellian said.

First round of cuts

The Star Online
Friday July 16, 2010



PETALING JAYA: The Government has begun its first round of a gradual subsidy rationalisation programme, promising it would have minimal impact on families.

Describing the cuts as part of a “difficult but bold” decision to reduce fiscal deficit, the Government said it would still have to spend an estimated RM7.8bil on fuel and sugar subsidies this year.

Thus, effective today, prices of petrol, diesel, liquefied petroleum gas (LPG) and sugar have increased following a reduction of the subsidy.

Sugar is revised to an additional 25 sen per kg to RM1.90. LPG is up 10 sen per kg to RM1.85.

Petrol RON 95, RON 97 and diesel have gone up by five sen per liter. For RON 97, the Government has decided to withdraw the subsidy later and subject it to a managed float, where the price will be determined by an automatic pricing mechanism.

“This subsidy rationalisation will, according to estimates, allow Malaysia to reduce Government expenditure by more than RM750mil this year,” a statement from the Prime Minister’s Office said yesterday.

Details of the changes are available on the websites of the Prime Minister’s Office and Pemandu.

The Government also said the “long-needed” economic reforms would help Malaysia maintain the strong growth it had achieved to become a developed and high-income nation.

“We have begun a planned and fair reform of a subsidy regime that for too long has been ineffective in helping those who need it most and, over time, has become a barrier to Malaysia’s progress,” the statement read.

The prices of fuel and sugar in Malaysia would still be among the lowest in the region, it said.

It also said the Government made the decision about the subsidies following robust consultations with the people, citing the thousands of Malaysians who took part in policy labs and Open Day.

“As with subsidy reform, the Budget, the Government Transformation Programme and the National Key Economic Areas, the Government has made a determined effort to engage the public, listen and learn, and then act in the best interest of the nation,” it said.

Although Malaysia had weathered the global recession well, the Government said the country could not achieve its ambition to be a high-income nation by simply managing through a crisis.

“As the Government has consistently said over recent months, we must also implement subsidy reforms that will remove distortions in the marketplace and enable us to better target our resources on those most in need, and on investments that will provide lasting benefits for Malaysians.”

It assured that the savings from the reforms would allow for resources to be better channelled for families, communities and business growth.

“Measures such as the 1Malaysia clinics, the 1Malaysia mobile clinics, as well as the scholarships for all 9A+ and deserving students – specifically those who have done well, but come from lower income families – are made possible by such reforms,” it said.

There were three main concerns which led to the subsidy rationalisation: wrong beneficiaries, wastage and abuse.

The Government also said that businesses used twice as much subsidised sugar than households, while owners of luxury cars enjoyed cheap fuel although they could afford unsubsidised prices.

Oil prices fall to lowest in eight months

Monday October 06 2008, Graeme Wearden, guardian.co.uk

Oil fell to its lowest level in eight months today, offering drivers and companies the hope of lower petrol prices in the weeks ahead.

The price of a barrel of US crude oil dropped to $89.38 in morning trading, a fall of $4. This followed sharp falls on world stockmarkets, reflecting concerns that demand for energy will drop as the global economy slows.

This is the first time since mid-February that a barrel of US crude has cost less than $90, and almost a year since it first broke through this level.

London Brent crude also fell this morning, losing almost $3.50 to $86.87.

For most of 2008 oil has been well over $100 a barrel, causing pain at the pumps where petrol now costs well over £1 a litre.

A litre of unleaded petrol currently costs an average of 109.9p in the UK, with diesel costing 121.5p a litre, according to www.petrolprices.com.

Typically it costs around six weeks for changes in the oil price to feed through to the consumers, but there are already signs that prices are falling. On Friday Asda and Morrisons both cut their fuel prices, with a litre of unleaded now costing 105.9p at Asda, and 106.6p at Morrisons.

Merrill Lynch analysts predicted last that the price of oil could sink to $50 a barrel next year, if the economic slowdown deepens into a recession.

However, oil-producing cartel Opec may cut production to stem falling prices. Last month, as oil slipped below the symbolic $100 a barrel mark, it reversed earlier plans to boost output.

Graeme Wearden

Oil plunges below US$92 in Asia on US credit fears

Tuesday September 16, 2008, The Star online

SINGAPORE: Oil prices plummeted Tuesday in Asia, falling below US$92 a barrel as investors feared the U.S. credit crisis that brought down brokerage giant Lehman Brothers will drag on global economic growth and restrain demand for crude.

Light, sweet crude for October delivery tumbled US$3.77 to US$91.94 a barrel in electronic trading on the New York Mercantile Exchange midday in Singapore.

The contract fell US$5.47 overnight to settle at US$95.71, the first time oil closed below US$100 since March 4.

In a stunning turn of events Monday on Wall Street, Lehman Brothers Holdings Inc., a 158-year-old investment bank, filed for bankruptcy after failing to find a buyer and Merrill Lynch & Co. agreed to be bought out by Bank of America Corp.

"People are selling everything. It's a bit of panic,'' said Jonathan Kornafel, Asia director for market maker Hudson Capital Energy in Singapore.

"We may not have seen the end of demand destruction. It's scary what going on economic-wise right now, and that's why oil is selling off.''

The Dow Jones industrials lost 504 points, or 4.4 percent, on Monday in their worst point drop since the September 2001 terrorist attacks, and Asian stock markets tumbled Tuesday.

U.S. Treasury Secretary Henry Paulson tried to calm markets, saying the American people can remain confident in the "soundness and resilience in the American financial system.''

Crude fell despite an attack by militants on an oil-pumping station operated by the local unit of Royal Dutch Shell PLC in southern Nigeria with dynamite and other explosives Monday which killed at least one guard in the third day of heavy battles between the armed forces and militants fighters.

Shell said one guard died and four others suffered injuries in the battle, which prompted an evacuation of some facilities in the southern region.

No details were given about any effect on oil production.

The Movement for the Emancipation of the Niger Delta, the region's main militant group, claimed responsibility for the attack. Since it emerged nearly three years ago, the group has mostly focused on hobbling Nigeria's oil industry, bombing pipelines in hopes of forcing the federal government to send more revenues to the impoverished oil-producing south.

"When you start to see the market not paying attention to what's going on around it, the fundamentals are not being closely looked at,'' Kornafel said.

"This drop since mid-July seems a bit overdone.''

Crude has fallen about US$55 - or 37 percent - from its all-time trading record of US$147.27 reached July 11.

In other Nymex trading, heating oil futures fell 8.08 cents to US$2.7104 a gallon, while gasoline prices dropped 7.0 cents to US$2.4914 a gallon.

Natural gas for October delivery fell 8.4 cents to US$7.29 per 1,000 cubic feet.

In London, October Brent crude fell US$2.33 to US$90.27 a barrel on the ICE Futures exchange.

Brazil declines Saudi invitation to join OPEC

Meanwhile in Sao Paulo Brazil declined a recent invitation from Saudi Arabia to join OPEC, citing plans to refine, not export, crude oil from its recently discovered deep water reserves, top energy officials said Monday. (Tuesday monring Malaysian time).

Mines and Energy Minister Edison Lobao said Brazil determined it doesn't need the cartel, because it plans to boost oil income by refining crude into products like gasoline for export abroad, the state's Agencia Brasil news agency reported.

Paulo Roberto Costa, a high-ranking executive with Brazil's state-run Petroleo Brasileiro SA oil company, confirmed the government had decided not to join OPEC.

"Brazil won't be a big exporter of oil, that's already defined,'' Costa told Agencia Brasil at the Rio Oil & Gas Expo 2008 industry conference in Rio de Janeiro.

"Brazil was invited to participate in OPEC and did not accept because our priority is refining here and exporting derivatives.''

Analysts say the reserves - found in the last year thousands of meters (feet) under the ocean floor and several hundred kilometers (miles) off the Rio de Janeiro coast - may contain 55 billion barrels of oil, enough to catapult Brazil to superpower oil status.

By refining its own oil, instead of shipping it abroad to be refined, Lobao said Brazil will generate more money and jobs at home.

The country is undergoing an economic boom but still has one of the world's deepest divides between rich and poor.

Under orders from President Luiz Inacio Lula da Silva, a commission of government ministers is examining possible changes in the nation's oil law.

Silva insists profits from the new oil discoveries be used to fight poverty and improve education.

Agencia Brasil said the Saudi OPEC invite came at a "recent'' meeting of oil producing nations, but gave no other details. OPEC met last week in Vienna.

Brazil last month declined an invitation extended by Iran to join the Organization of Petroleum Exporting Countries. Lobao did not specify why at the time, saying only that Brazil had "other priorities.''

Also Monday, Petrobras said it awarded contracts to build 10 new floating production, storage and offloading units to develop its new fields.

Petrobras will rent two units to produce 100,000 barrels a day by 2014, and will build eight others to produce up to 120,000 barrels a day by 2016, according to a company statement.

A spokesman declined to give disclose how much the contracts were worth or with whom they'd been signed.

U.S. traded shares of Petrobras plunged 11.7 percent to US$40.35 in New York on Monday, amid a global stock meltdown and oil prices that closed below $100 a barrel for the first time in six months. - AP

Oil tumbles, but when will petrol prices follow?

By Harry Wallop, Consumer Affairs Correspondent , 15/09/08, Telegraph.co.uk

The price of oil has fallen below $100 a barrel for the first time in nearly six months, as the likelihood of a severe global recession increased in the wake of the collapse of Lehman Brothers.

# Oil markets escape Hurricane Ike mayhem

The price fell more than $4 to $97 US dollars a barrel. The last time the price was below $100 was April 2.

Petrol forecourts in Britain are now under pressure to cut the price of unleaded petrol and diesel, motoring groups said. They warned that drivers had missed out on the full benefit of the oil price fall earlier this summer, when it came down from its peak of $147 a barrel.

The fall in the price of oil came as investors digested the collapse of Lehman Brothers. With investors betting that the chaos on Wall Street would cause the credit crisis to deepen – and economies around the world to use less oil – investors started to sell the commodity.

The sell-off was also prompted by reports that suggested the damage from Hurricane Ike was less than feared.

The storm destroyed at least 10 oil and gas platforms and damaged pipelines in the Gulf of Mexico – only a small amount of the 3,800 production platforms in the Gulf. Three years ago, a series of hurricanes knocked out more than 100 platforms.

The AA warned that petrol prices on UK forecourts have not fallen as quickly as oil, with average unleaded petrol down from July's peak of 119.7p to only 112.8p at the weekend.

Average diesel prices have fallen from 133.3p to 124.2p. This compares to the 34 per cent fall in the oil price.

The AA said that petrol prices needed to fall by another 4 pence in the coming days, or motorists would lose out once again.

Luke Bosdet, a spokesman for the motoring group, said: "I am not hopeful. Petrol retailers have a history of dragging their feet."