In view of the rally in crude oil prices, there is considerable pressure on governments to deregulate the markets in whatever capacity they can and let the market forces determine the consumer prices.
This puts a downward risk to oil demand growth in key markets such as China, India, Indonesia and Malaysia or a shift towards alternate fuels.
SINGAPORE (Commodity Online): India recently announced a Rs 5/litre hike in diesel prices after raising petrol prices a few times this year as increasing subsidy burden on account of higher global crude oil prices have caused fiscal imbalances.
Wood Mackenzie in a recent presentation at APPEC 2012 pointed out that a rally in crude oil prices could put considerable pressure on Asian economies to de-regulate prices and hence impact overall demand for crude oil.
Mr Sushant Gupta, Senior Asian Downstream Analyst at Wood Mackenzie said that, ”High oil prices will increase the subsidy burden on many governments in Asia which will increase the pace of de-regulation.” Wood Mackenzie estimates that in 2011, refining and marketing companies in India, China, Malaysia, Indonesia, Taiwan and Vietnam made a combined loss in the range of $70 billion (bn) to $80bn due to government intervention in controlling the consumer prices.
As such, there is considerable pressure on governments to deregulate the markets in whatever capacity they can and let the market forces determine the consumer prices. This puts a downward risk to oil demand growth in key markets such as China, India, Indonesia and Malaysia or a shift towards alternate fuels. Income levels, consumer behaviour and inter-fuel competition will ultimately drive the impact of deregulation on oil demand. For example in India, subsidies distort the demand for diesel/gasoil, with diesel cars showing a strong growth in sales and diesel/gasoil even replacing fuel oil to generate power.
On the other hand, global demand for crude oil remains strong and US WTI prices are expected to remain above $100 till 2013. Robust demand growth is still expected by 2013, increasing by 1.0-1.5 million barrels per day (mb/d), driven by Asian oil demand for transportation, petrochemical and power sectors. by countries such as Indonesia, China, Japan and India. These four markets account for a major share of Asian demand growth.
source - www.commodityonline.com
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