The government of Malaysia may be on track to spend RM28 billion in fuel subsidies this year if the price of crude oil remains above US$100 (RM419) per barrel. While the government stands to gain a larger sum in oil revenue, the fuel subsidies bill this year could be five times higher than the RM5.3 billion allocated under Budget 2022, KAF Research has found, The Star reported.
“Based on the above analysis, the government will receive a higher oil revenue amounting to about RM57 billion this year from RM44 billion estimated under Budget 2022 at the current oil price of about US$109.20 (RM458) per barrel, which is 65.5% higher that the Budget 2022 assumption of US$66 (RM277) per barrel,” KAF Research said.
This however means that the government will also incur a subsidy bill of RM28 billion, while the larger-than-expected increase in subsidies of RM22.7 billion would far surpass the RM13 billion gain in oil revenue, it said; higher oil prices may therefore pose a net negative impact on the country’s fiscal position “to the extent that every US$10 (RM42) per barrel increase in oil prices raises the fiscal deficit by 0.1% of gross domestic product (GDP),” the KAF Research report read.
Premium grades of petrol have been continuously climbing in price. For the week of March 17 to 23, 2022, RON 97 is priced at RM4 per litre, while RON 95 petrol remains at its capped price of RM2.05 per litre; diesel retail prices are similarly capped, with Euro 5 B10 and B20 at RM2.15 per litre, and Euro 5 B7 diesel at RM2.35 per litre.
According to sensitivity analysis by KAF Research, every US$1 (RM4.19) increase in the price of Brent crude means a RM300 million increase in the government’s revenue. However, the same increase will also increase the subsidy bill by RM440 million, which translates to “a net fiscal impact of minus RM140 million for every US$1 per barrel increase in oil prices, after subsidies kick in above the break-even point of US$55 (RM231) per barrel,” the report said.
When oil prices averaged US$70.85 (RM297) per barrel last year, the government had spent RM11 billion in subsidies; last month saw Brent crude go above US$100 (RM419) per barrel last month, which was the highest since 2014, following the Russian military invasion of Ukraine from February 24, The Star reported. Russia is the world’s third-largest oil producer after the United States and Saudi Arabia.
The research firm maintained its estimate of a fiscal deficit of 6% of GDP for 2022, as the government has several options for covering the shortfall of RM7 billion to RM10 billion based on the average oil price estimate of between US$90 (RM378) to US$110 (RM462) per barrel, The Star reported.
The Malaysian government has two options at this juncture, says KAF Research; it can either revert to the previous targeted subsidy programme that had been shelved, and abolish the fuel price ceiling, or raise the fuel price ceiling to “a more tolerable level of RM2.80 to RM3.00 per litre,” the research firm suggested.
“Before an announcement is made regarding the targeted fuel subsidies, we expect Bank Negara Malaysia to begin normalising rates in the second half of the year at the pace of one to two rate hikes,” the research firm’s report added.
A one-time cash payment assistance programme of up to RM625 was introduced by the Malaysian government, and fuel prices were floated at the same time. Fuel subsidies were abolished in 2014 and prices were instead based on an automatic price mechanism, however fuel subsidies were reintroduced in 2018 which saw RON 95 petrol and diesel priced at RM2.20 and RM2.18 per litre, respectively.
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With high oil prices, wouldn’t the dividends provided by Petronas to Federal also increase?
Copy paste: “This however means that the government will also incur a subsidy bill of RM28 billion, while the larger-than-expected increase in subsidies of RM22.7 billion would far surpass the RM13 billion gain in oil revenue, it said; higher oil prices may therefore pose a net negative impact on the country’s fiscal position”
Yay, we can use our EPF to buy fuel
Last year Petronas gave our kewangan mauvericks Rm25 B.This year make it Rm45m B ,how about that? This years profits can easily exceed Rm100 B.
Petronas is doing very good national service.We are very proud of that.
If still want rakyat to pay Rm4/ for1 litre,be prepared KWSP withdrawals will continue non stop.
This is exactly why we need MRT3, for the public to have more alternatives to travel about and not be burdened by higher fuel prices, and yet you blast it as a hypocrisy. I think the real hypocrisy here is you.
right pocket is exporting crude oil. left pocket is subsidizing petrol for rakyat. the net needs to be valuated at both pockets…don’t just publish the left side.
Don’t you read?
Right pocket = RM13 billion
Left pocket = RM22.7 billion
Those dudes think rakyat got FFFF for maths.
Thats the problem.
Did those dudes not notice there is prodigy girl at age 7 doing O level exam ?
Common ,wake up sleepy dudes..this is abad 21.
Copy paste: “As The Star reports, rising oil prices are generally positive for a net oil and gas exporting country like Malaysia. According to a CGS-CIMB Research report, it is estimated that for every US$1 (RM4.18) per barrel average increase in oil prices, the government stands to add some RM370 million in revenue.
However, given that the country has a fuel subsidy mechanism in place, that same US$1 per barrel increase will set the government back by around RM780 million in fuel subsidies, based on the price of RON 95 and diesel remaining unchanged at their ceiling price of RM2.05 per litre and RM2.15 per litre respectively.”
https://paultan.org/2022/03/09/rising-oil-prices-fuel-subsidy-costs-malaysia-more-than-it-profits-each-us1-increase-is-a-rm410m-deficit/
CP: There is a prodigy girl at ae 7 doing O level exam but you must be the exact opposite prodigy of failing kindergarten level maths. Well done.
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Ini maseh semua salah Putin. Syukur petrol rakyat Malaysia RON95 masih murah… #BetterNation #KeluargaMalaysia
I did not vote Putin.
Copy paste: “What are u talking?”
Upvotings for imperialist Russkiball war of aggreshon, increasing of oil prices.
Downvotings for democratic Ukrainball defensing of stable normal oil prices.
See comment below
Let Lim Guan eng be MOF. Lim Guan Eng can give malaysian Rm1.50 perliter petrol with subsidy just cost RM500million. Hidup Raykat! Hidup Raykat..
Lim Guan Eng math is 10 – 20 = 500.. Hidup Terowong! Hidup Raykat!
Pls dont juz tell us one part of the story. Msia is also a net oil exporter and with crude oil hitting USD126/- per barrel havent we also benefitted immensely from this phenomenal.
We did not benefit immensely as we have to use those profits to pay for rakyat subsidised petrol even more.
Net net aren’t we’re still better off?? No??
Copy paste: “Don’t you read?
Right pocket = RM13 billion
Left pocket = RM22.7 billion”
Go buy a Tesla and don’t need to worry about fuel prices…
Excudes time and again
Excuses
Nonsense…otak masuk air
I don’t confused :(
When the oil price is US$66 per barrel, the revenue is RM44 billion,which shall give RM667 million per US$ (RM44 billion / US$66). How do they get RM300 million per US$ increase in oil price?
Second, when the oil price increase a lot (65.5% as per article) and the costs remain stable, the profit margin would be much higher.
Say the cost is profit margin is 50%, the profit is US$33 per barrel when the price is US$66. So when oil price increase to US$100, the profit should be US$67 (US$100 – US$33), the profit is doubled.
We only earn the margin between selling our higher grade oil and buying Saudi oil for our consumption. If crude oil goes up, both rises the same percentage so basically we do not benefit from rising oil prices as selling and buying prices goes up in tandem. Only way we can truly benefit is by reducing consumption. Basically we need more people staying at home or WFH.
But the oil we export is more than what we import. So high oil price should be benefits to our country. We can earn extra on the net exporting volume of oil. But the article indicates that high oil price is hurting us.
The only problem I can see is that those previous pump Ron97 may choose to pump Ron95. The question is how big the impact.
CP: See my comment below
Copy paste: “As The Star reports, rising oil prices are generally positive for a net oil and gas exporting country like Malaysia. According to a CGS-CIMB Research report, it is estimated that for every US$1 (RM4.18) per barrel average increase in oil prices, the government stands to add some RM370 million in revenue.
However, given that the country has a fuel subsidy mechanism in place, that same US$1 per barrel increase will set the government back by around RM780 million in fuel subsidies, based on the price of RON 95 and diesel remaining unchanged at their ceiling price of RM2.05 per litre and RM2.15 per litre respectively.”
https://paultan.org/2022/03/09/rising-oil-prices-fuel-subsidy-costs-malaysia-more-than-it-profits-each-us1-increase-is-a-rm410m-deficit/
When oil was low in 2020, we should have decouple from this stupid fuel subsidy and focus on strengthening the RM. High RM means low inflation. If we can get it to RM3 to 1USD like it was in 2014, it would be like no oil price increase. But every gomen we had are too silly not to do this. All our neighbours are paying full price or higher for fuel.
Blame it on Pakatan for having no balls to decouple. Spineless idiots that fooled us into voting them.