Cheaper oil fuels hope

Cut in petrol prices will reduce inflation

By IZWAN IDRIS

PETALING JAYA: The declining crude oil price in the global market has lifted expectations the Government may cut fuel prices sold at local pumps under a new market-driven pricing system to be in place next month.  

Economists said lower fuel selling prices would immediately cool down inflation and ease pressure on Bank Negara to raise lending rates in the near term. 

“A cut in fuel prices would keep a lid on inflation and allow Bank Negara to focus on sustaining economic growth,” a senior economist at a local bank said. 

Drivers too would appreciate the development as cheaper petrol means it would cost less to fill up their car tanks. 

Muslims will begin their month-long Ramadan fasting period in early September before celebrating Hari Raya in October. Every year during this period, major highways would be clogged up by millions of motorists heading for family gatherings and holiday destinations. 

“Without any fuel cut, we would expect inflation to only peak in September or October, as people would typically spend more during festivities,” the economist said. 

Last week, the Government said it would review pump prices every month from Sept 1 to keep up with price fluctuations in the international market.  

It also said the RON 97 petrol price in the domestic market would be capped at RM2.70 per litre this year and consumers would continue to enjoy a 30 sen discount against market prices. 

Crude oil was down to US$118 per barrel in New York yesterday. 

At current levels, crude oil had fallen nearly 20% from its peak of US$147 barely a month ago. It is also about 6% lower from early June, around the time the Government increased petrol and diesel selling prices by 41% and 63% respectively. 

“Petrol prices are now close to market prices,” CIMB Research oil and gas analyst Norziana Mohd Inon wrote in a 72-page report on the sector released yesterday. 

The extensive report focused on companies involved in the domestic oil and gas sector, coupled with industry analysis and its impact on the broader economy. 

At US$123 per barrel as at Aug 1, the RM2.70 per litre paid by Malaysian drivers was estimated to be 12 sen cheaper than its market price, the report said. 

This means the Government’s fuel subsidy bill was reduced to 12 sen per litre against 33 sen per litre when the fuel hike was announced. 

Even at current prices, domestic petrol and diesel prices are significantly lower compared with Thailand and Singapore, but this is partly due to the high tax imposed on petroleum products sold in those countries. 

Back-of-the-envelope calculation at yesterday’s crude oil price of US$118 per barrel shows the market price for RON 97 has fallen to RM2.70 per litre, which is what consumers now pay at local pumps.  

Analysts see further volatility ahead in the international crude oil market, but there is growing belief that prices would probably stabilise around US$100-US$110 in the coming months.  

Latest oil, NYSE, NASDAQ, commodites and other reports from the AP-Wire