Domestic fuel prices look set to remain high for Thai consumers, with the global outlook for oil prices looking increasingly high.
The decision by Opec+ to cut oil output was slammed as “short-sighted” by US President Joe Biden, with many market analysts anticipating oil prices to rise beyond US$100 per barrel imminently.
Thailand’s Oil Fuel Fund Office (OFFO) said even the potential for a widespread economic recession is unlikely to dampen fuel prices, particularly with the continued lack of supply to Europe from Russia and the need for diesel and bunker oil to help generate electricity through the cold winter months ahead. Wisak Watanasap, director of OFFO, said plunging temperatures would ramp up electricity demand and therefore keep crude oil prices high.
Both diesel and petrol are therefore expected to remain expensive at the pumps for Thai motorists. The price of diesel per litre has sat at around 34.9-35.00 baht since the middle of the summer. That’s despite crude oil reference values from Dubai plunging to $82.92 per barrel in recent weeks – down from its $175.80 per barrel peak in June.
When it comes to hard commodities, oil is one of the most influential resources traded in Thailand, both by businesses and retail traders alike. If you’re wondering what a hard commodity คือ, it’s an asset that’s not available above ground without the need for extraction or mining. Alongside oil, the likes of copper, iron ore and rubber are some of the most popular hard commodities in Thailand and elsewhere in south-east Asia.
Mr Watanasap said that the OFFO had incurred “losses” as a consequence of the volatility in oil prices this year. In fact, losses worth over 124 billion baht had been accumulated, after it was utilised to subsidise skyrocketing LPG and diesel prices. 82.7 billion baht has been spent on capping diesel prices at the pump and a further 42.5 billion baht ring-fenced for LPG subsidies.
Falling domestic fuel prices still some way off – even once global prices decline
Watanasap admits the OFFO will need to recoup a levy when global oil prices do eventually fall before the declines are felt at the pumps for Thai citizens. The OFFO has recently claimed a levy of 1.15 baht per litre of diesel paid by consumers. There is further concern that if the US dollar continues to strengthen against the baht that Thailand will be importing further inflation by purchasing more expensive offshore oil.
The country’s central bank is under intensifying pressure to reinforce the baht, bringing it down to around 35 baht to the dollar. Late last month, the bank confirmed it was intent on reducing volatility surrounding the national currency, having crashed to its lowest value against the greenback in almost 16 years.
The central bank opted to hike key interest rates by 0.25% in a bid to establish a more hawkish position against the dollar, which has been buoyant against so many fiat currencies in Asia and further west, including the likes of the British pound and the Euro.
The OFFO says that its officials plan to continue subsidising the price of LPG until the end of this month. It’s currently capped at 408 baht per cylinder (15kg).