Demand Supply And Fuel Subsidy On Petrol Economics Essay

Petroleum is rough oil in its natural province which contains a assortment of hydrocarbons, liquid organic and other inorganic compounds ( Petroleum.co.uk, 2013 ) . Malaysia is known for being an of import manufacturer of crude oil. It has the 23rd largest petroleum oil militias in the Earth. Among many oil companies found in Malaysia such as Caltex and Shell, Petronas is the lone major oil company that is owned by the authorities. In twelvemonth 2008, Petronas contributed RM67.6 billion to the authorities, which was besides 44 % of the authorities ‘s gross ( Kok, 2009 ) . This shows that the crude oil industry is a important subscriber to Malaysia ‘s income.

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The demand and supply of crude oil in Malaysia is influenced by assorted factors. In the instance of demand of crude oil, one of the factors is figure of autos sold in the state. Harmonizing to informations shown in Malaysian Automotive Association, the entire figure of autos sold in twelvemonth 2000 was 343,173 ; while in twelvemonth 2011, the figure of gross revenues rose to 600,123 ( Malayan Automotive Association, 2008 ) . Harmonizing to the International Energy Statistics, the ingestion of crude oil ( thousand barrels/day ) in twelvemonth 2000 is 141.677, whereas the ingestion in twelvemonth 2010 rose to 208 ( U.S. Energy Information Administration, 2013 ) . This shows a direct relationship between the figure of autos sold and the demand for crude oil. The addition in public transit affects the demand for gasoline. When more people use public conveyance, entire figure of vehicles used for conveyance lessenings, gasoline ingestion besides decreases. Furthermore, the gross revenues of intercrossed autos can act upon the demand for crude oil. In 2012, gross revenues of intercrossed autos have risen from 8,334 units to 15,355 units ( Star Motoring, 2013 ) . As intercrossed autos are less demanding in gasoline ingestion, the demand for gasoline will diminish somewhat. Last, consumer ‘s income affect the demand of gasoline because the higher the income, the greater the gasoline ingestion because they can afford to pass.

Cost of rough oil affects the supply for crude oil ( Caltex, 2013 ) . When cost of rough oil additions, production cost additions, net income earned by the manufacturers reduces, monetary value becomes expensive and this will diminish the demand for crude oil somewhat. The authorities policy affects the crude oil supply. For illustration, the authorities entrusted the state ‘s crude oil to a authorities owned company called Petronas through the Petroleum Development Act 1995 ( KeTTHA, 2010 ) . With the constitution of Petronas, geographic expedition and extraction of crude oil additions. Finally, the depletion of resources affects the supply of crude oil. Since twelvemonth 2000, crude oil militias have been consuming bit by bit ( Othman and Jafari, 2011, pg12 ) . When there ‘s a deficit of resources, supply of crude oil lessenings. Price of gasoline will spike.

A subsidy is the amount of money given intended to assist a peculiar industry or a merchandise cut down its monetary value and to engender the industry. A fuel subsidy is the sum of money, which is the difference between the merchandising monetary value of fuel and its cost monetary value, paid by the authorities. By making so, the authorities could guarantee that fuel is sold at a reduced monetary value and this will cut down the load bared by the people ( Sam, 2012 ) . There are many advantages to fuel subsidy. One of them is that fuel subsidy can cut down the pecuniary load inflicted upon the hapless. The poorer citizens who are besides consumers can acquire gasoline at a lower monetary value. Another benefit is that the citizens could bask low monetary value of gasoline even though the international market monetary value for gasoline has risen.

However, fuel subsidy has its disadvantages every bit good. Fuel subsidy can in bend become a liability on the authorities budgets. If fuel subsidy occupies the major subdivision of the budget pie, this means that the authorities would hold fewer budgets to pass on other undertakings that will profit the state. Examples of such undertakings include instruction and wellness. It besides promotes over-consumption ( Hickey, 2012 ) . When monetary value of gasoline becomes low for a long period of clip, the people will hold no inducement to pattern moderateness in devouring gasoline because they can acquire it stingily. Furthermore, wholly people from assorted fiscal standing receive the benefits of fuel subsidy. The job is that this scheme is non economically efficient because the rich who could afford to utilize more gasoline would profit more from the subsidy as compared to the hapless who could merely devour limited sum of gasoline ( Aris, 2012 ) . Finally, long term fuel subsidy will merely promote the people to go overly dependent on unnaturally inexpensive gasoline ( Kok, 2012 ) .

In decision, figure of autos, gross revenues in intercrossed autos, public transit and consumers ‘ income affects the demand of crude oil, whereas cost of rough oil, authorities policy and depleting resources affects the supply of crude oil. Fuel subsidy has pros and cons as explained in the essay. As crude oil is an indispensable trade good to Malaysia, we must implement schemes to conserve and salvage this natural resource.

( 799 words )

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