ON Monday right before midnight, it was a hive of activity all over Malaysia as everybody made a beeline to fill up their cars fuel tanks at petrol tanks. It’s that time of the month again when oil prices are either raised or lowered.
But this time it was increased and understandably Malaysians were angry because they are already struggling with the rising cost of living. But don’t worry because there is a possibility that oil prices can come down again in the next few months.
The rakyat must first understand the managed float system
What is the managed float system? It is important that the rakyat must understsand what the managed float system is. Oil prices go up and down all the time. This is based on the daily international prices of crude oil.
So in the month of October, the government looks at all of the 31 days in October and takes the average price of oil. So if the average price in October is US$51 per barrel compared to US$50 in September, then the government has no choice but to increase oil price.
But if the average price in November goes down to US$49 a barrel, then Malaysians can expect oil prices to go down in November.
The rakyat must look at the average oil price for the month, not the oil price at the end of the month
A lot of rakyat have expressed their anger on social media – why has oil prices gone up when global oil prices are going down? Yes that is true, global oil prices are going down at the end of the month, but for the most of October, it has been going up. That is why the government had to increase oil price.
So Malaysians, please look at average oil price in October. Please don’t look at oil prices on October 31!
Managed float system is not new
The managed float system was introduced on December 1, 2014 by the government, through the Domestic Trade, Cooperatives and Consumerism Ministry which has implemented the managed float system to set the prices of petrol and diesel following the removal of fuel subsidies. So the rakyat must be aware by now that oil prices have been going up and down for two years already.
Oil prices in November is already going down
Eventhough oil prices in October has been increasing in early November, oil prices are already going down. This is because, the world’s top oil producers such as Saudi Arabia, Qatar and Indonesia do not want to cut production. If production is not cut, there will be an oversupply in the market and crude oil prices can go down. And the rakyat can buy cheaper oil and this will reduce their cost of living.
The government is not that cruel
The government is not that cruel and is always looking to help the rakyat because fuel increase would have been 20 sen if it had not been for Prime Minister Datuk Seri Najib Razak.
Bernama reported on 1 November 2016, that the government is still subsidising RM400 million for fuel despite the latest increase in retail prices. Second Finance Minister Datuk Johari Abdul Ghani said the current retail prices for fuel were calculated based on the average price for October which saw a higher increase than what the rakyat buys at the petrol stations.
“Based on the October price, actually the price increase is supposed to be 20 sen. But Prime Minister Datuk Seri Najib Razak feels that we should reduce a little bit (the increase) because we can’t increase too much,” he said.
So Malaysians, the government is helping all it can to help Malaysians not feel the high cost of living.
Oil is sold in US dollar
The rakyat must also understand that oil is sold in US dollar and not in ringgit. So when our ringgit is weak and the US dollar becomes stronger, then we have to fork out more ringgit to buy the oil.
But we are fortunate because the oil price increase was not that much because our ringgit has strengthened a bit in October. What this means is that when the ringgit is stronger, we fork out less ringgit to buy the oil. So in October, we did not pay that high for our petrol thanks to the strong ringgit.
The rakyat must understand, that oil prices is beyond our control
Oil is an international commodity and is a necessity for everybody on the planet. Thus the rakyat must understand that Malaysia is a small oil producer compared to Saudi Arabia, Russia, Qatar, Venezuela, Indonesia and others.
So the rakyat must try their best to understand that oil price is something that the government cannot control. But the government will do its best to lessen the hardships of the rakyat by subsidising and hopefully this will lessen their high cost of living.
Petronas is a net importer of oil
We must also understand that Petronas is a net importer of oil. What it means is that it sells oil but at the same time it also buys oil from other countries.
But it has to buy more oil because what it produces is simply not enough for the Malaysians.
So that is why it has to buy the oil in US dollars because international oil is sold in US dollars.
And to do that, it has to fork out more ringgit. So that is why the government has no choice but to increase the oil price.
Government and Petronas cannot subsidise the rakyat forever
Petronas and the government cannot survive if they continue to subsidise us Malaysians all the time. Last year alone, Petronas subsidised Malaysians at almost RM20 billion a year in fuel subsidies.
This is not sustainable and Malaysians must also help Petronas and the government too by reducing fuel consumption. This can be done by buying fuel efficient cars, maintain their cars regularly so that it will not use a lot of oil and also use public transport or car pool to save cost.
Nik Haikal Nik Ibrahim is an independent analyst and Malaysian Access reader. Article written is strictly his personal view. Malaysian Access does not necessarily endorse the opinions given by any third party content provider.