Fuel Prices & Subsidies

Submitted: Thursday, Jun 05, 2008 at 13:33
ThreadID: 58401 Views:1983 Replies:2 FollowUps:3
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The rise in the price of refined petroleum products has seen many call for action by the government to ease the price pressure. This has ranged from the removal of the fuel excise to a reduction in GST. The forum may be interested to see the response from other countries, especially those providing subsidies. Perhaps it could be argued that the removal of excise in Australia would amount to a subsidy.

Price may well serve to ration usage and this has been one of the problems in Asia and the sub-continent. Many of these countries subsidise fuel and this has insulated consumers in those countries from the spike higher in the price of oil and in turn refined petroleum products. There has been no incentive for them to rationalise fuel usage given the subsidies they receive.

India and Malaysia have just raised retail fuel prices joining a growing number of Asian nations no longer able to afford big subsidies in the face of record-breaking oil prices. Taiwan, Sri Lanka, Bangladesh and Indonesia are also reviewing subsidies.

India raised petrol and diesel prices by about 10 percent, cut taxes on oil imports and raised the price of cooking gas by 17 percent. Malaysia raised petrol prices by 41 percent and said it will start using global market rates for fuel in August to prevent subsidies from eating up a third of its budget.

The fact that these countries are removing fuel subsidies will be a good thing for the rest of the world as it may reduce demand and ease the upward price pressure on oil.
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Reply By: Member - Footloose - Thursday, Jun 05, 2008 at 13:43

Thursday, Jun 05, 2008 at 13:43
Are we expecting China to stop stockpiling fuel in the near future ? Surely that would also reduce demand? Not that China is the only one, but it seems to be a major player.
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Follow Up By: The Landy - Thursday, Jun 05, 2008 at 14:00

Thursday, Jun 05, 2008 at 14:00
Hi Footy

China periodically adjusts fuel prices and is likely to do so again in the not too distant future.

A report I saw recently suggests that China’s oil demand is expected to grow by about 370,000 barrels per day (bpd) to 7.9M bpd over the course of 2008.

Specifically looking at diesel; PetroChina plans to import a record 2.4 million tonnes of diesel this year and continue to halt exports to boost supply to the local market.

This volume would represent a record high in recent years and is well in excess of China's total diesel imports of 1.62 million tonnes in 2007.
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Follow Up By: Member - David P (VIC) - Thursday, Jun 05, 2008 at 15:35

Thursday, Jun 05, 2008 at 15:35
Like I said there might be light at the end of the tunnel when consumption patterns correct, which can already be seen in US vehicle choice and reduced use combined with the Asian price restructuring and a possible strengthening (?) of the US$ could in the short term at least see some 'long' oil traders/speculators get caught which will simply prove that they can lose money just as fast as they make it.
This potential 'breather' in fuel prices combined with the announced tax and fast tracking measures by our Feds aimed at the gas based energy producers in Oz MIGHT mean we can keep the dream alive for some time yet....fingers crossed
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Follow Up By: The Landy - Thursday, Jun 05, 2008 at 17:54

Thursday, Jun 05, 2008 at 17:54
David

I looked at an interesting chart a week ago which has oil prices / lagging wheat prices (yes wheat) by 60 days. The correlation over the past 2 years has been spot on and of course wheat has come off a long way. I have some views as to why this is the case, but in any case if the correlation holds oil should come off. Not so far fetched with US Fed Governor Bernanke trying to talk the US dollar higher and the number of speculative oil positions in the market.

Happy to send the chart if you msg me your email address.

Landy
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Reply By: Wizard1 - Thursday, Jun 05, 2008 at 13:52

Thursday, Jun 05, 2008 at 13:52
Alweays wondered why fuel was so affordable in these poorer countries.
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