Little oil relief as Asia wary on subsidies

Pushed to the brink by $135 crude, some Asian nations are finally allowing subsidized fuel prices to rise sharply, just the thing to help temper demand. Unfortunately, however, it’s in the wrong countries to help tame a rally in prices that has been stoked by relentlessly rising consumption in China, India and the Middle East. Over the past week, as oil touched a record $135, Indonesia, Taiwan, Sri Lanka and Bangladesh have either raised regulated fuel prices or pledged that they will, forced into unpopula
r action by the unsustainable cost of subsidies.


In total those countries consume less fuel than India, where politicians appear likely to water down the industry’s aggressive price rise proposal if they agree on an increase this week. And China, which uses nearly three times as much as India, seems unlikely to make any adjustments until after the Olympics. “The fuel subsidies have been impeding genuine demand destruction. We will only see the true impact on demand when the increases in international prices are passed on to more consumer countries,” said
John Russel of consultants KBC Market Services. And if done all at once, that could be painful-analysts say China would have to double fuel prices to fully pass on costs to consumers; India would have to increase by 50 to 60 percent.

Demand growth from Asia and the Middle East-where many nations shield their people from rising fuel prices by providing subsidies or controlling prices-has come back into focus at a time when US and Japanese demand is starting to fall. Despite shaving its 2008 world oil demand forecast earlier this month, the International Energy Agency said demand growth from emerging countries, led by China and the Middle East, would remain strong at 1.4 million barrels per day (bpd), or 3.7 percent, this year. This will
offset falling consumption in places like the United States and Japan, where consumers bear the full brunt.

Kuwait Times