Archive for Malaysian Fuel Prices

We may not see our fuel prices ever dropping below RM1.92 per liter, if the current Domestic Trade and Consumer Affairs Minister gets his way. Minister of Domestic Trade and Consumer Affairs is of the opinion that the government should scrap the RM0.30 per liter fuel subsidy if the cost of fuel minus the subsidy ended up being less than RM1.92 per liter.

This is because he feels RM1.92 per liter is a reasonable price to pay for fuel in Malaysia. In fact, since a floor price of RM1.92 per liter is being suggested, we could also see sales tax for petroleum introduced if unsubsidised fuel ends up being priced under RM1.92 per liter!

“I believe that we should try as best as possible to reduce or even stop forking out money for fuel subsidy and use it for development and economic purposes. Despite a decline in global fuel price, the amount of subsidy the government has to fork out is still substantial. I also believe that if the price is any lower than what I have mentioned, the public will not practice wise spending because an essential item is cheap,” said Datuk Shahrir.

The new higher fuel prices has forced me to be more frugal with my accelerator pedal. My driving is alot smoother and I managed to stretch my mileage from about 450 to 500km per tank to 620km per tank thanks to a new driving pattern. But at the same time, you have to acknowledge that those from the really poor income bracket need all the help they can get and would definitely benefit from having a fuel price lower than RM1.92 per liter without increasing their consumption unreasonably!

Government fuel subsidy expenditure for the months of June, July and August 2008 was RM1.97 billion, RM1.95 billion and RM1.42 billion respectively. In addition to that, the government also paid out an additional RM2.5 billion between April to September 2008 for the RM625 per vehicle subsidy.

“The government has spent up to RM16.8 billion just on fuel subsidy and RM2.5 billion on rebates for motorists and motorcyclists. All that means from January to December, we’ll be spending about RM19 to RM20 billion. If we can save some money on subsidy, that savings will be spent to tackle the issue of economic growth,” the Minister added.

The RM625 subsidy will be gone next year. In its place will be a new system that has yet to be decided by the government.

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As indicated earlier this month by Minister of Domestic Trade and Consumer Affairs Datuk Shahrir Abdul Samad, a cut in fuel prices have been announced effective from tomorrow, but despite a big fall in crude oil prices worldwide, the reduction for all three fuel types is a maximum of 15 sen a liter.

According to the government, this is supposedly to help the petrol dealers cope with losses of existing fuel stock. However Shahrir noted that there are some in the government who prefer more significant cuts at one go. I reckon if crude oil prices continue to remain low, the next revision of prices that is likely to happen on the 15th of November 2008 will another maximum drop of 15 sen until it reaches a proper low price according to market rates.

The following are the new prices of fuel in Malaysia slashed by 15 sen each effective tomorrow, the 1st of November 2008:

Minister of Domestic Trade and Consumer Affairs Datuk Shahrir Samad has indicated that the prices of petrol and diesel could be reduced again by the end of October 2008 as world crude oil prices were still on a downward trend.

He added that revising the price of petrol and diesel is easier now as the matter no longer had to be discussed in the Cabinet, but instead can be decided through a meeting of a few key ministers chaired by the PM. I think as earlier promised, we are slowly moving towards having a floating price for petrol and diesel that is revised twice a month, with potential to be even more frequent in the future.

The last fuel price slash was a couple of days ago on the 15th of October 2008. RON97 fuel was slashed 15 sen from RM2.45 per liter to RM2.30 per liter, while RON92 and Diesel fuel were slashed to the same RM2.20 per liter.

Interestingly, the minister also mentioned that the government cannot bring down prices drastically as it could have adverse effects in the supply chain, but it seems that they have no qualms about increasing it drastically as proven in the past.

I suppose he is referring to the petrol station operators suffer losses if fuel price goes down by a large margin while they still have stocks of fuel purchased at the old price. Even when fuel prices went up, they had something to complain about – the margin of profit for every liter sold which they claimed remained the same while the cost of fuel went up.

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It was just a few days ago that Minister of Domestic Trade and Consumer Affairs Datuk Shahrir Abdul Samad said a fuel price cut could be coming at the end of the month, but it looks like the government has decided to drop the prices earlier – tomorrow! The amount slashes is also more than the maximum of 12 sen that was previously indicated.

The following are the new prices of fuel in Malaysia slashed between 10 sen to 20 sen, effective on the 15th of October 2008:

Based on the average monthly fuel price so far, Datuk Shahrir Samad has indicated a probable reduction in petrol prices of up to a maximum of 12 sen by the end of October 2008. If the maximum of 12 sen reduction is achieved, this would mean RON97 fuel could cost RM2.33 per liter, down from the current RM2.45 per liter. This maximum drop is possible if crude oil prices average out below US$104 per barrel.

Our petrol price is dependent on two factors – the price of crude oil itself and the exchange rate between USD and MYR. Datuk Shahrir mentioned that at current exchange rate prices, oil per barrel has to be US$72 for a RM1.92 petrol price. If we want to enjoy a RM1.92 price with oil costing more than US$72 per barrel, our ringgit instead needs to appreciate against the US dollar.

Minister of Domestic Trade and Consumer Affairs Datuk Shahrir Abdul Samad says it is possible for further reduction of petrol and diesel prices in November 2008 if the average crude oil prices for October 2008 remain below US$104.

Let’s just pray that this happens! The current lower prices are partly due to the failure of the US$700 billion US financial sector bailout to pass through the US House of Representatives voting. The Bush administration is now trying to pass a revised bid and if this goes through, we may see crude oil prices go up again in anticipation of higher demand from the US, who are the biggest consumers of the commodity.

The government dropped a bomb on us on the 5th of June this year by raising RON97 petrol prices from RM1.92 per liter up to RM2.70 per liter. It then reduced prices to RM2.55 in August and RM2.45 in September.

Prices of crude oil dropped about 10% yesterday on the NYMEX after the US House of Representatives rejected the Bush administration’s bid for a US$700 billion bailout of the American financial sector called the Emergency Economic Stabilization Act of 2008.

November delivery light sweet crude dropped as much as US$11.85 at one point, finally settling down at US$96.37 a barrel, down US$10.52. In London, Brent North Sea crude for November dropped US$9.56 to settle at US$93.98 per barrel.

It previously spiked 16% (up to US$120.92) partly in anticipation of a positive outcome to the very same bailout bid, and a few other reasons such as the expiry of front-month futures contracts and weakening of the US dollar. At the time of that spike November contract delivery prices were US$109.37. December and January contract prices are now roughly the same as November’s price at US$96.09 and US$96.37 respectively.

“Oil prices should remain under downward pressure. Oil traded for the last five years on fear of supply interruptions. It is now trading on fear of economic collapse,” said WTRG Economics analyst James Williams.

With this new news, are the government going to reduce petrol and diesel prices again? Or will they say it not make a difference to their coffers because of other reasons such as the ringgit weakening against the US dollar?

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The government has reduced the price of fuel in Malaysia by RM0.10 per liter across the board for all three types of fuel.

Minister of Domestic Trade and Consumer Affairs Datuk Shahrir Samad said the government could only manage a RM0.10 reduction because although crude oil prices have dropped, the ringgit has depreciated against the US dollar.

He added that according to calculations the government could only reduce prices by RM0.07 sen but decided to increase subsidy by another RM0.03 sen to make it a total of a RM0.10 price reduction. It would be interesting to see how this is calculated.

The following are the new prices for petrol and diesel in Malaysia, effective tomorrow:

This means that for a full tank of 50 liters, you get to save RM5 per fuel tank or between RM20 to RM30 depending on whether you fill up between 4 to 6 times a month. I hope this means something to those that are needy out there, but as for me I do not feel like I will be saving much. Selamat Hari Raya!

Our hopes for a lower fuel price after the Cabinet’s meeting tomorrow could be affected due to this latest development in world crude oil prices. Oil prices soared from a low near US$90 range a barrel last week up to US$120.92 per barrel today for October contract delivery US crude. However, November contract delivery prices settled down at a lower price – US$109.37.

Analysts say this is because of the expiry of the front-month futures contract and the weak US dollar. “The market went crazy here and it looks like the weakness of the dollar was a fuel for the sharp price increase. NYMEX October crude was also expiring and that provoked short-covering,” said an analyst at Summit Energy.

A Bank of Ireland analyst said a key driver of the price hike is the US rescue package for the banking industry, which has apparently changed the sentiment in the oil market.

A bail-out for the US financial sector will mean continued demand for energy in the country, which has the highest consumptions of the commodity at over 25% of total world consumption.

NYMEX – Light Sweet Crude Oil Contract Detail – October 2008
NYMEX – Light Sweet Crude Oil Contract Detail – November 2008

Related Stories: (external sources)
Regulators review huge NYMEX oil price surge – Reuters
Oil prices soar to record one-day gain – Times Online
Oil posts biggest ever 1-day gain – CNN
Oil prices jump, partly from ’short squeeze’

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We could be looking at another reduction in petrol prices after this Wednesday’s cabinet meeting where fuel prices and the possibility of a reduction will be discussed, according to Minister of Domestic Trade and Consumer Affairs Datuk Shahrir Samad.

Datuk Shahrir previously said fuel prices could drop before Hari Raya Aidilfiltri so we can “celebrate Hari Raya happier.”

The last reduction in fuel prices was on the 23rd of August 2008 from RM2.70 per liter to RM2.55 per liter for RON97 fuel.

According to the NYMEX, crude oil is currently US$102.73 per barrel. A few days ago it was less than US$100 per barrel. Do you think RM2.30 per liter is possible? Will it make a difference?