More than 90% of vehicle owners who regularly used RON97 petrol have switched to the cheaper RON95.
The trend is not expected to reverse anytime soon with costs of other essentials and food also rising.
Petrol Dealers Association Malaysia president Khairul Annuar Aziz said most petrol dealers were selling upwards of 2,000 litres of RON97 per month previously. “Now we are making do with just 200 litres,” he told FMT Business.
The switch is inevitable. Oil prices have risen sharply in recent months. Crude oil prices began the year at just over US$74 a barrel and trended upwards to quickly reach a high of US$120.07 on March 7.
Prices eased to just over US$90 on March 16 before rallying to US$119.69 on June 8. The average price per barrel this year is US$113 compared with US$70.68 last year.
Geopolitical developments such as the Russian invasion of Ukraine were among the factors that have led to the rise in oil prices.
In Malaysia, the price of RON97 at the pump rose a sen to RM4.84 per litre for the week of June 23 to June 29. In contrast, the price per litre of the heavily subsidised RON95 is RM2.05.
Khairul said the government is currently underwriting the cost of subsidy for about 20 billion litres of fuel a year.
Sunway University’s Yeah Kim Leng said the government will now incur “an exorbitant amount” in subsidy payment as a result of the shift by consumers.
A potential remedy, he said, is for the government to introduce targeted subsidies. “This will help to curb the expected increase in the overall subsidy cost,” he told FMT Business.
Yeah said this could be done by taking the option of allowing the price of RON95 to be adjusted upwards rather than maintaining it at the current level.
“It can help to reduce the subsidy burden on the government given that the Ukraine crisis and its adverse impact on oil prices are unlikely to ease anytime soon,” he said.
Yeah said that while oil prices have yet to peak given the slowing demand, the strengthening of the US dollar would put upward pressure on it, as it would on the prices of other essentials such as food.
He also expects the fiscal deficit to widen this year if the trend continues. “We will then have to budget for a larger amount for next year if we do not switch to a more targeted subsidy regime,” he added.