Piston.my

No more cap on fuel prices as subsidies will not be provided if global oil prices rise

UPDATE AT 8:45 PM/June 10:
According to Bernama, quoting the Domestic Trade & Consumer Affairs Minister,
the government has not removed the ceiling prices.

When the Pakatan Harapan government was managing the country’s affairs, one of the things which it did for consumers was to cap the prices of RON95 petrol and diesel. Though the country didn’t have a lot of money and had massive debts due to the 1MDB scandal, the government was still willing to provide subsidies to maintain fuel prices when needed. The prior government had removed subsidies and allowed the Automatic Pricing Mechanism to determine weekly retail prices at the pumps.

The subsidies, though discouraged by economists because they can distort the market, helped to provide a degree of stability for businesses. Being able to make projections of future transport costs without worrying about fluctuations in fuel prices made planning less of a headache. It eased the burden on consumers already facing challenges of rising cost of living.

Petrol station

Change approved in April 2020
Now, under the present government, things have changed and they were done with no announcement (though through proper gazetting procedures). Apparently, the change was approved in April this year but we didn’t notice it because fuel prices had fallen very low (and people were more concerned about the MCO). It was gazetted at the beginning of this month.

There will no longer be any cap on RON95 petrol at RM2.08 a litre, nor on diesel at RM2.18 a litre. If global oil prices and other factors result in the Automatic Pricing Mechanism setting prices above those levels, they will be followed as there will be no subsidies used to offset the additional cost.

Oil refinery
With the global pandemic forcing lockdowns that reduced demand for oil, prices have been sliding down since the beginning of the year.

No subsidies needed since February
For many weeks since February, no subsidies have been necessary as the prices kept going downwards. The last time subsidies were needed was the first week of February when the government pumped in RM10.43 million.

In early March, the prices of RON95 petrol and diesel dropped below RM2.00 and kept going down to as low RM1.25 and RM1.40 for petrol and diesel, respectively. However, by the end of May, the prices started to slowly move up again, with this week’s levels being RM1.48 and RM1.73, respectively. Still some way to go before reaching the previous capped levels but the trend seems to be upwards and oil output and demand begin to be more in sync.

PISTON.MY

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