Oil prices surged toward the last quarter of 2010 to trade above US$90 (RM276.12) a barrel, raising concerns of higher food and fuel prices, reduced purchasing power and threatening the global economic recovery.
Analysts are expecting prices to hit US$100 (RM306.80) this year.
In developing countries, inflation risks pushing millions below the poverty line as food takes up a high proportion of their incomes, raising the spectre of food insecurity.
Inflation and high food prices also carry political risks for governments the world over as they lower the standard of living for segments of society, creating resentment and unrest.
The International Energy Agency (IEA) warns that the global economy is under threat due to oil price entering a “dangerous zone.”
According to IEA, oil import costs for member countries of the Organisation for Economic Cooperation and Development (OECD) have shot up by US$200bil ((RM614bil) to US$790bil (RM2.4tril) at the end of 2010.
The higher oil bill is equal to a loss of income of 0.5% of the OECD combined gross domestic product, said IEA.
“It is not in the interest of anyone to see such high prices,” said IEA’s chief economist Fatih Birol.
“Oil exporters need clients with healthy economies but these prices will sooner of later make the economies sick, which would mean the need for importing oil will be less.”
Oil prices have been rising on the back of strong demand from China, India and a recovery in the United States’ economy
In Malaysia, higher oil prices in the global market saw the price of RON97 petrol increased by 10sen to RM2.40 on Jan 5, 2011. The price of kerosene also went up by 10 sen to RM2.50 per litre.
RON97 last increased by 15 sen to RM2.30 per litre on Dec 1, 2010.
On Dec 4, 2010, the Government cut the subsidy for the widely-used RON95 petrol by 5 sen. This increased the price of RON95 to RM1.90 per litre.
Despite the increase, Malaysia’s retail prices remained lower than those in neighbouring countries such as Indonesia, Singapore and Thailand.
The price per litre of RON95 in Indonesia is RM2.46, Singapore RM4.36 and Thailand RM4.25.
Malaysia spends an estimated RM73bil a year to keep the price of petrol, flour, sugar and other items low.
Malaysia’s subsidy rationalisation is necessary as part of the Government’s efforts to cut the country’s budget deficit, which soared to 7% of its gross domestic product in 2009, the largest ever in 20 years, on the back of a slowing global economy and subsidy spending.
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