Oil Fund Defends Price Surge

Thailand Defends Fuel Price Hike Amid Global Oil Surge

The Oil Fuel Fund Office in Thailand has moved to explain and justify a significant increase in fuel prices nationwide, stating that the adjustment was a necessary response to escalating global oil costs and the imperative to safeguard the fund’s financial health.

An executive from the Oil Fuel Fund Office highlighted that Thailand’s decision was not an isolated event. They pointed to Malaysia’s recent action of raising diesel prices by an amount equivalent to nearly seven Thai baht in a single day, underscoring a regional trend in fuel price adjustments. Even with the substantial increases implemented, the current pump prices in Thailand remain competitive when compared to most of its neighbouring countries, with the exception of Malaysia.

These price adjustments were precipitated by a resolution from the Oil Fuel Fund’s executive committee, which opted to curtail subsidies in an effort to stabilise the fund’s precarious financial standing.

Global Turbulence Takes a Heavy Toll

Pornchai Jirakulpisan, Director for Policy and Strategy at the Oil Fuel Fund Office, elaborated on the factors driving the global oil price escalation. He cited the ongoing geopolitical instability in the Middle East as a primary catalyst, which has been consistently pushing up international crude oil prices. This surge, he explained, has a direct and unavoidable impact on retail fuel prices across the globe, including within Thailand.

Mr. Jirakulpisan further revealed that the fund was experiencing a widening liquidity shortfall, which had reached 35 billion baht. This deficit was compounded by daily outflows of approximately 2 billion baht, necessitated by the ongoing efforts to subsidise pump prices and keep them artificially low.

He reiterated that neighbouring nations were also grappling with similar, significant price adjustments. The example of Malaysia’s fuel price increase of 5 to 7 baht per litre on Wednesday served to demonstrate that Thailand’s revised prices were, in fact, not exceeding those of its regional counterparts.

The decision to reduce subsidies for diesel and benzine products, Mr. Jirakulpisan stated, was the outcome of a comprehensive review by the fund’s executive committee, which “considered the matter from multiple angles” before reaching its conclusion.

“We would like to assure the public that the Oil Fuel Fund is committed to maintaining appropriate domestic retail price stability,” he asserted. He appealed to the public for judicious energy consumption, adding that the reduction in compensation was anticipated to bolster the fund’s resilience against future increases in global oil prices.

The fund will, however, continue to provide subsidies for fuel types deemed critical to the nation’s economy and the daily lives of its citizens. These essential fuels include diesel and gasohol variants such as E10 and E20.

An Adjustment Faster Than Anticipated

Questions were raised by reporters regarding the timing of the price increase, specifically why it was implemented all at once, contrary to an earlier statement by the National Economic and Social Development Council (NESDC) on March 17, which suggested a more gradual approach.

Mr. Jirakulpisan explained that the surge in global crude oil prices had been far more abrupt and severe than initially forecast. He provided a stark illustration: at the time of the NESDC’s statement, the regional benchmark for refined products, Platts FOB Singapore Gasoil, was trading at approximately US$198 per barrel. Within a mere three days, this price had dramatically climbed to $242 per barrel. Such a rapid escalation, he noted, compelled countries to implement swift price adjustments.

“When crude rises that sharply, the fund’s expenditures jump, liquidity worsens, and we must adjust retail prices to keep the fund afloat,” Mr. Jirakulpisan elaborated.

The Rationale Behind the Late-Night Announcement

The government’s decision to announce the price hike late on a Wednesday night also drew criticism and fuelled speculation that fuel traders might be engaging in stock hoarding.

Mr. Jirakulpisan firmly rejected these allegations. He explained that global reference prices from Singapore typically conclude their trading around 7 pm. Following this, fund executives undertake the crucial task of calculating the baht-denominated price structure, a process that was completed by 9 pm. Subsequently, the executive committee convenes to formalise the decision.

“We were waiting for complete information to set the correct prices. The late timing was not meant to benefit anyone,” Mr. Jirakulpisan stated. He reiterated his conviction that fuel traders had no advance knowledge of the impending price adjustment and denied any deliberate hoarding activities. “Even our own staff only knew once calculations were finalised,” he added.

When questioned about reports of earlier fuel shortages at specific service stations, Mr. Jirakulpisan clarified that stock-related matters fall under the purview of the Department of Energy Business.

The Specter of 70-Baht Fuel for Songkran?

Looking ahead, amid persistent concerns about the ongoing conflict in the Middle East and potential disruptions to oil transportation, some individuals are speculating that Thai drivers could face fuel prices as high as 70 baht per litre by the time the Songkran holiday arrives in mid-April.

Mr. Jirakulpisan cautioned that such an outcome is entirely contingent upon the trajectory of global oil markets. The capacity of the oil fund to absorb or mitigate future price volatility, he explained, will ultimately hinge on its own liquidity.

“This round of reduced subsidies will help, but we cannot predict how high global prices may climb,” he concluded.