Fuel subsidies at risk with rising crude costs

Beijing: With oil at $100, Asia's top oil consumers and major global producers are united by the common problem of subsidised fuel prices for their burgeoning economies.

Their responses will differ - Gulf nations can throw a mountain of petrodollars at the problem, while Asian importers must gradually roll back subsidies - but they are both set to remain the key drivers of global oil demand, analysts agree.

Countries selling below-market transport fuel account for more than half of the world's growth in consumption, so in theory their subsidy regimes have a crucial market impact.

And Asia's appear to be crumbling. But the region's leaders have in the past been slow to act on price reform pledges, and the growing middle classes look set to do nothing more radical than grumble about fuel costs.

"I don't think demand is going to drop off based on price anytime soon, nothing I see in China, India or the US is going to really cause that," Ashok Krishna, vice-president of technology for Chevron Global Downstream, said.

"I go to India and see the prosperity of the middle class. There is a huge consumer market and I don't think they are going to worry about another Rs5 or Rs10 per gallon right now," he told journalists in Beijing.

China's 17 months of resistance to pricier fuels ended last week when widespread shortages forced a surprise 10 per cent hike. Malaysia's prime minister this week braced his party for rises and India may increase pump rates next week.

Global impact

While Asia bows to the effect of record oil which came within $2 of the $100 mark on Wednesday, oil producing countries of the Middle East have growing incentives to provide cheap fuel to bolster economic growth.

Armed with windfall oil export revenues, most governments in the region sell fuel at subsidised or at-cost prices.

"Governments in the Gulf see one of their mandates as providing cheap energy to the populace," said David Kirsch, manager of market intelligence at Washington-based consultancy PFC Energy said.