Crude soars, but Asia sticks to cheap fuel

Crude soars, but Asia sticks to cheap fuel

Beijing/ Jakarta: Asian governments from Indonesia to China to India are in no rush to eliminate domestic fuel subsidies by raising cheap local pump prices, officials said this week, even as crude oil rockets toward $100 (Rs3,950) a barrel.

Policies that have shielded consumers in Asia’s most populous nations from the impact of oil’s four-year rally look set to remain until year-end, if not longer, with governments enriched by roaring economic growth prepared to pay out for popularity. “They will raise fuel prices, that’s inevitable, but it’ll be a question of timing and careful planning," said Faiz Hussin, senior oil markets analyst at PFC Energy.

That doesn’t seem likely soon, and should help support oil’s rally even as US demand growth begins to falter.

Of the International Energy Agency’s estimated global oil demand growth of 1.23 million barrels per day (bpd) this year, two-thirds will come from India, China and West Asia—all of which subsidize the cost of fuel for their motorists.

The world’s second largest consumer, China, announced in September that it would not raise any state-set prices for the rest of 2007, as it makes taming inflation its top priority, and officials show little sign of backing down on that.

India, which cut prices twice since June 2006, last week approved the issuance of nearly $6 billion in bonds to partly compensate state refiners for their losses.

“It looks unlikely that there will be a fuel price hike," said Harish Menon, an economist at ING Vysya Bank in Mumbai.