State plans to respond to soaring oil prices

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State plans to respond to soaring oil prices

Increased burden on Petroleum Fuel Fund

Fuel prices are displayed at a Shell petrol station in Bangkok yesterday. Energy prices are rising due to the Russian-Ukrainian conflict. Chanat Katanyu

The government has two choices to deal with soaring global oil prices – borrow more money to continue subsidizing prices or let local oil prices rise – as the global price could rise to $150 a barrel amid of the Russian-Ukrainian war.

“Authorities may have to let retail oil prices rise to better reflect market prices, or they may have to use a lot more money from the Petroleum Fund to subsidize prices,” said Chairit Simaroj, chief executive of Susco. , a local oil company listed on the SET. Trader.

According to media reports, Brent crude rose nearly $130 a barrel amid growing fears that global oil supply could shrink due to additional sanctions against Russia.

Global oil prices have risen more than 25% since Russia attacked Ukraine, Chairit said.

“It is possible that global oil prices will continue to rise as the United States and its European allies consider a ban on oil exports from Russia,” he said.

Analysts at Thai Oil Plc (TOP), Thailand’s largest oil refinery by capacity, have expressed similar concern as Russia is the world’s top oil exporter, supplying 4-5 million barrels of oil a day. , or around 5 to 6% of the world’s oil supply. .

OPEC and its allies decided after their March 2 meeting to increase oil production by just 400,000 barrels a day in April, rejecting a request from the United States to increase supply to cool prices, according to TOP.

“Additional oil exports from Iran could also be delayed, leading to supply concerns,” Chairit said.

If global oil prices end up reaching $150 a barrel, it will be the highest level since 2008, when prices soared to $147 a barrel.

Domestic oil prices have risen by around 4 baht per liter since the start of the war, placing a greater burden on the National Petroleum Fuel Fund, which caps diesel prices at less than 30 baht per litre.

He said the government could opt for a slight increase in retail oil prices, bringing them more in line with world prices and helping local oil retailers better cope with the ongoing price spike.

“The oil profit margin is currently at its lowest level, at less than one baht per litre,” Mr. Chairit said.

“The government should allow retail prices to rise temporarily. Once the war subsides and there is less pressure on global prices, it can again cap retail prices at certain levels.”

The move would also help the government reduce its financial burden, while the cost-of-living relief measure remains in place, he said.

Supant Mongkolsuthree, chairman of the Federation of Thai Industries (FTI), said businesses and households would be hit the hardest if global oil prices continued to rise to $150 a barrel.

“The cost of living and the rate of inflation will all go up,” he said.

The FTI had previously suggested the government seek an additional loan of 1 trillion baht to support the Oil Fuel Fund and its stimulus plans.

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