Impacts on the Retail Fuel Price in Malaysia

Impacts on the sell Fuel Price in MalaysiaBackground description of retail burn bell in MalaysiaAccording to the local news on 7 March 2013, the retail uptake of RON 97 entrust be RM2.90 per l when it was previously RM2.70. Mean man, the retail terms of RON95 carcass unchanged as it is subsidise by the presidential term. In May, a 20 sen drop incurred for RON 97 per cubic decimetre. in that location was no change in damage for RON 95 and diesel motor.On kinfolk 2, 2013, Malaysias Prime Minister, Datuk Seri Najib Razak announced that the footing of diesel and RON95 petrol would extend by 20 sen (Bridel Lontoh, 2014) joining neighboring Indonesia to threaten investor confidence in any case curbing in subsidies (Chong, 2013). in that respect was a 20 sen damage incremental to 2 Ringgit per litre for diesel and the new wrong for RON 95 is RM 2.10 per litre from RM 1 (Lim, 2013). The hike was to prevent financial leakage and misappropriation of the subsidise provid e, said Tun Dr Mahathir Mohmad, reportsBernama (Phung, 2014). The retail price of RON 97 continued to increase by 15 sen (Lim, 2013). In November, the price of RON 97 had gone down to RM2.75 per litre from the existing RM 2.85 per litre (Lim, 2013).On the first month of 2014, the price of RON 97 went up 5 sen to RM2.80 per litre. An sepa drift 5 sen was incurred for the price of RON 97 in the following month. In March, the previous price of RON 97 brought up with a new retail price of RM2.90. The RON 97 price decreased with a 5 sen to RM 2.85 per litre. (Lim, 2013)On 9th September, the price of RON97 dropped by 10 sen to RM2.75 per litre. (Lim, 2013). Royal Malayan Customs Department senior assistant director Ishak Daud toldSin Chew Dailythat there is an addition of 80 to 85 zero- layd items. Prime Minister Datuk Seri Najib Razak announced that diesel and LPG allow be exempted from the Goods and Services Tax (GST) taking effect in April 2015 (Tan, 2014). The prices for RON 95 pe trol and diesel will slightly increase by 20 senon 2 October, announced by the Ministry of Domestic Trade and Consumer (Sze, 2014). The sunshine reported that Political party PAS urged for an increase in price for two petrol and diesel, to allow petrol station operators compete with each new(prenominal) (Lim, 2014). Theprices of petrol and diesel were indicated to drop until January of next year (Lee, 2014).In short, the represent in 2013 shows theres an upward trend for Ron95 and diesel where theres a rise in 20sens on 3 September. However, the render price for Ron97 fluctuates between a low of RM2.70 and a peak of RM2.90 beforehand ending at RM2.75 at the end of the year. In 2014, there was a plateau in fuel price for Ron95 and diesel from January to September and then(prenominal) it increase stepwise. For Ron97, the fuel price rises since January but then fell gradually after June.Fuel price in Malaysia between 2013 to 2014 (Galvin, 2015)DateRon 97 (RM)Ron 95 (RM)Diesel (R M)10 Jan 20132.70 (-0.05)1.90 ( )1.80 ( )7 Mac20132.90 (+0.20)1.90 ( )1.80 ( )22 May 20132.70 (-0.20)1.90 ( )1.80 ( )3 Sep 20132.70 ( )2.10 (+0.20)2.00 (+0.20)5 Sep 20132.85 (+0.15)2.10 ( )2.00 ( )14 Nov 20132.75 (-0.10)2.10 ( )2.00 ( )8 Jan 20142.80 (+0.05)2.10 ( )2.00 ( )7 Feb 20142.85 (+0.05)2.10 ( )2.00 ( )7 Mac 20142.90 (+0.05)2.10 ( )2.00 ( )6 Jun 20142.85 (-0.05)2.10 ( )2.00 ( )9 Sep 20142.75 (-0.10)2.10 ( )2.00 ( )2 Oct 20142.75 ( )2.30 (+0.20)2.20 (+0.20)19 Nov 20142.55 (-0.20)2.30 ( )2.20 ( )1 Dec 20142.46 (-0.09)2.26 (-0.04)2.23 (+0.03)NoteRon 95 and diesel are subsidies by government, while pricing of Ron 97 is determined according to securities industry forces.Ron 92 remains at RM1.70 since 16 Dec 2008Determinant for retail fuel priceDemand and impart of arrant(a) anoint The cosmoss biggest economies much(prenominal) as the United States, consumes most anoint in the world. The other(a) worlds largest rock anoint consumer includes Japan, Canada and South Korea ( Gethard, 2008). However, the country that plays the biggest role in anoint inhalation is chinaware. In 2013, China surpassed the United States becoming the worlds largest importer of crude crude oil as they took up one-third of growth in the orbicular penury (Eia.gov, 2014). As China is currently a dynamic and fast-growing economy, Chinas demand and usage of oil grows rapidly. The development of the countrys economy sess be seen in Chinas increase number of factories and growth in number of people driving cars (Wagner, 2008). As China economy starts developing rapidly only these recent years, their oil reserves are non as much compare to other developed economies deal the United States who had reserved oil for many years, thus Chinas has extensive demand for oil from the global food market. This increase demand has contributed to the rise of global crude oil price which has indirectly raise retail fuel prices in Malaysia.Organization of Petroleum trade Countries (OPEC) i s a body that has great influence over the worldwide price of oil which compriseof 12of the worlds largest oil producing nations (Gethard, 2008). Since there is a shortage of the worldwide oil merchandise, OPEC as the biggest oil supplier reduces the amount of oil contributed to the world market and manipulate the selling price of oil per barrel. Besides, semipolitical conflicts in Libya sustains its crude oil production further leading worldwide oil supply to decrease (Batovic, 2014). With uncertainty of supply, countries compete with each other for crude oil supply and this rising demand increases the price of crude oil. The global market now has to even up at a higher price for the very(prenominal) amount of oil. As the cost of purchasing crude oil price increases, the Malaysia government increases the retail fuel price to the citizens.Foreign transfer rateBeca practise the world crude oil price is set in US Dollars, the conversion of world oil price into Malaysia ringgit ch anges every day in the foreign exchange rate market. Suppose there is a glisten in Malaysias ringgit against the US dollar on the world currentness exchanges, Malaysia has to pay more to purchase the same amount of fuel from the global market. Example the increase from US$1.00 = RM3.50 to US$1.00 = RM3.75 indicates a depreciation in Malaysia dollar. As the cost of purchasing crude oil increases, this implies citizens excite to pay more for the same amount of fuel too. The foreign exchange rate is constantly monitored by the Malaysia government before deter exploit the retail price of fuel. Therefore, the retail fuel price often fluctuates.SubsidyThe changes in retail price of fuel depend on the provision of subsidies by the government. If the government provides subsidies for fuel such as the Ron95 and diesel, the price is cheaper compare to the price of Ron97 which is not subsidies. In 2013, MYR 24.8 billion (US$7.9 billion) was allocated to fuel subsidies. The government argued that the subsidy reduction would publish at least MYR 1.1 billion (US$349 million) by the end of 2013 (Lee, 2013). The cost salve in subsidies would be channeled into the BR1M welfare fund, said Prime Minister Najib Razak (Lam, 2013). By doing so, 20 sen was increased in the price of RON 95 and diesel beginning on 3 Sept of 2013. In brief, the absence of subsidy causes retail fuel to rise in Malaysia.EffectsConsumerLow oil price results in the savings cascade down into the rest of the economy in form of cheaper prices. Consumers will hence have more disposable income to hap (Parry Kemp, 2012) leading to higher purchasing power. Besides, individual who drives car can retain the cost for car petrol monthly.High oil price causes consumers to have less disposable income to spend especially those with a lower income. afterward barely consuming the necessities such as groceries, there will be not much currency left to afford the luxuries, for example, travelling with family and f riends. makerFalling oil price brings negative impact on the mining industry, for instances those extracting oil and natural gas or constructing the pipelines to move those commodities. For makers, cheaper prices mean every less profits or even losses. Thus, oil producer will supply less oil to the market until oil prices rise back.If a person is required to pay more for oil, fork overed goods and others, less will be left over for discretionary spending by the consumers (Parry Kemp, 2012). Buying a new home is such type of discretionary expenditure. Hence, the producers of the housing will supply less as the demand from consumers had fall. Besides the housing producers, other fields are also affected. As fuel is needed for transportation to deliver goods and services, higher oil price will affect the delivery sector as transportation fee is higher. Not to mention, oil producers may use this opportunity to charge a higher price on fuel to gain more profit as well.GovernmentAs oi l producers are evaluateed by Malaysia government, when oil prices are lower, government revenues will drop. There is always measure to be taken to diminish the damage. Government can save money by reducing or removing oil subsidy. done this, government can spend the money on other study like educational activity, welfare of the society or development of infrastructure for the sparing growth of Malaysia.Inversely when oil price is higher, the cost to build or maintain infrastructures will be higher as materials, labors, and other be needed to build or repair infrastructures are higher. Fuel consumption for the transportation of these materials also leads to higher expenditure of the government. As government spends more money on this area, they will have to cut back expenditure on other areas such as health care and education expenses (Parry Kemp, 2012).ConclusionIn conclusion, the demand and supply for crude oil, foreign exchange rate and subsidy provided by the government a ffects the retail fuel price in Malaysia. When oil price is low, government gain less tax revenue, producer gain less profit and consumer have more unmistakable money to spend, where they might afford luxury goods after purchasing necessities like groceries. When oil price is high, government gain more tax revenue, producer gain more profit and consumer have less spare money to spend. If the producer loses and not gaining profit, employees might get fired, causing them to be unfounded and have less money for consumption.Reference listBatovic, A. (2014). Five political risk factors affecting oil markets in 2014 ball-shaped Risk Insights. online Global Risk Insights. forthcoming at http//globalriskinsights.com/2014/01/five-political-risk-factors-that-will-affect-oil-markets-in-2014/ Accessed 21 Jun. 2015.Bridel, A. and Lontoh, L. (2015). online Available at https//www.iisd.org/gsi/sites/ thoughtlessness/files/ffs_malaysia_lessonslearned.pdf Accessed 14 Jun. 2015.calvin, d. (2015) . 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