Oil prices and Subsidies

1. Why has the price of fuel on the international market increased recently?

• Since mid-2004, the price of crude oil has increased substantially on the world market. For example, the West Texas Intermediate (a reference price used in the United States and globally) increased from US$19 per barrel in 1993 to US$31 in 2003. In October 2004, it reached US$51 and in 2005 it went up to US$67 per barrel. (73 dollars on Monday 5/6/2006)
  

• The main causes for these increases are:

- The existence of a tight market due to the small margin between production (83.0 million barrels per day(bpd)) and demand (82.5 million bpd);
- High demand for oil by China, India and the United States;
- Uncertainly of supply in some OPEC (Organization of Petroleum Exporting Countries) countries;
- Adverse weather conditions such as Hurricane Emily in Mexico, affecting oil production and
- Speculation on oil prices.
2. Our country produces oil. So why should we increase fuel prices?

• The price of oil and petroleum products are determined by the international market based on supply and demand. These are factors beyond our control. OPEC also plays an important role in setting oil production levels which in turn, affect the market price. Although Malaysia produces and exports oil, we are not a member of OPEC, nor are we a major oil producing country. As such we have no influence on how the price of oil is determined in the international market.

• If there is a large increase in oil prices on the world market, it affects the price of petroleum products such as diesel, petrol and cooking gas (LPG) in our country.