Managed Float System To Stay With Oil Prices At Below US$80 A Barrel

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KUALA LUMPUR, Nov 22 – The managed float system is expected to be used to determine the prices of RON95 and diesel fuel on a monthly basis as long as global oil prices stay at below US$80 (RM268.44) a barrel. The drop in global oil prices has at present reached the subsidy level of below RM2.30 per litre for RON95, Deputy Finance Minister Datuk Ahmad Maslan told Bernama.

Yesterday, the futures position for West Texas oil for forward month January 2015 was at US$76.28  (RM255.96) a barrel, while that of crude Brent North was US$79.64 (RM267.23) for the same period. In this regard, the government has decided that from Dec 1, the retail price of RON95 petrol and diesel would be according to the managed float system.

The average price of RON95 from Nov 1 to Nov 19 based on the Automatic Price Mechanism (APM) fell to RM2.27 per litre compared to the retail price of RM2.30 per litre at the pump at present. Asked if the managed float system would be halted if global oil prices increased again, Ahmad said it would continue for the moment.

He was of the view that if oil prices moved above US$80 a barrel, subsidy rationalisation needs to be in place. “This does not mean the subsidy rationalisation will be comprehensive as at present but be more targeted. It could include introducing subsidies based on income,” he added. Elaborating further, Ahmad said the managed float system for RON95 benefited the government as it was no longer burdened by the subsidy, which could be now be handed over to the people. He said last year, the government provided an average annual subsidy of 74 sen per liter for RON95, and 76 sen for diesel, for about 23 million vehicles.

“The fuel subsidy for last year was RM23.5 billion or about RM2 billion monthly. This year, the subsidy was reduced to about RM19 billion. “It declined due to the fall in crude oil prices over the past two months of the year, following the decline in global crude oil price. Crude oil prices have remained at between US$100 (RM335.55) and US$120 (RM402.66) a barrel for a long time,” Ahmad added. He also expressed the hope that traders, wholesalers and manufacturers concerned would now reduce the prices of goods, following the drop in the fuel price.

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