When bubbles collide
Up until now Asian consumers have largely been insulated from the soaring cost of oil by government subsidies. However many Asian countries are finding it increasingly difficult, if not impossible, to continue to absorb these costs with crude rising to unprecidented levels.
Something has to give.
Malaysia is raising retail gasoline prices by 40%, which means that the average man on the street will pay $3.30 a gallon for gasoline, compared to $2.30/gallon previously. All but absolutely necessary gasoline consumption will dry up. Economists estimate that the increase could raise inflation by 5% in Malaysia almost overnight.
In Indonesia fuel prices were increased last week by almost 30%, or $2.46/gallon. With millions of Indonesians living on $2/day you don't have to be Einstein to work out what that is going to do to demand.
In India, state-owned oil companies are losing more than $100 billion per year because gasoline is sold to every citizen about $2.00 per gallon under the average market price in the world. It is breaking the government's budgets and they announced this week that gasoline prices will be increased by 10%.
The eyes of the world are on the Chinese government which has had a lot of bad press recently. Reeling from the recent earthquake and with the Beijing Olympics round the corner, the government there are unlikely to further risk the wrath of the people by hiking up gasoline prices just yet.
However, Sinopec, China's main refiner, loses an estimated $430 on each ton of product it sells, according to published reports. And that's after they received a reported $1 billion compensation from the government LAST MONTH, which was more compensation than it received in the WHOLE of 2007.
If China are forced to follow suit, and who is to say they won't once the Olympics are out of the way, then we are looking at a reduction in world demand of unprecedented proportions.
As our chums across the pond say, go figure.
Something has to give.
Malaysia is raising retail gasoline prices by 40%, which means that the average man on the street will pay $3.30 a gallon for gasoline, compared to $2.30/gallon previously. All but absolutely necessary gasoline consumption will dry up. Economists estimate that the increase could raise inflation by 5% in Malaysia almost overnight.
In Indonesia fuel prices were increased last week by almost 30%, or $2.46/gallon. With millions of Indonesians living on $2/day you don't have to be Einstein to work out what that is going to do to demand.
In India, state-owned oil companies are losing more than $100 billion per year because gasoline is sold to every citizen about $2.00 per gallon under the average market price in the world. It is breaking the government's budgets and they announced this week that gasoline prices will be increased by 10%.
The eyes of the world are on the Chinese government which has had a lot of bad press recently. Reeling from the recent earthquake and with the Beijing Olympics round the corner, the government there are unlikely to further risk the wrath of the people by hiking up gasoline prices just yet.
However, Sinopec, China's main refiner, loses an estimated $430 on each ton of product it sells, according to published reports. And that's after they received a reported $1 billion compensation from the government LAST MONTH, which was more compensation than it received in the WHOLE of 2007.
If China are forced to follow suit, and who is to say they won't once the Olympics are out of the way, then we are looking at a reduction in world demand of unprecedented proportions.
As our chums across the pond say, go figure.
