SECOND Finance Minister Datuk Seri Johari Abdul Ghani suggested recently that the government might impose a ceiling price for oil sold at petrol stations nationwide.
Johari said in certain advanced countries, the governments would leave oil prices afloat, and the oil and gas industry players would determine them.
“It is up to the government to set a ceiling price which is deemed fair for all.
“When we (the government) have decided on the ceiling price, whether the oil and gas industry players want to sell the oil at lower prices for promotional purposes, we leave it to them. This is one of the options we are looking at,” he said.
What does this mean? How will it impact the rakyat?
Let’s take a look.
Ceiling Price For Oil, How Does It Work?
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At the moment in Malaysia, there are a few food items which are regulated especially during the festive season.
As an example, during Hari Raya or Chinese New Year, prices of essential food items such as chicken, cooking oil and flour cannot be sold above their ceiling prices.
The prices of these goods are monitored closely by the Domestic Trade, Consumerism and the Cooperative Ministry.
This is because during the festive season, demand for these food items will be very high and by imposing the ceiling price, it will prevent the traders from making too much profit.
As an example, chicken cannot be sold more than RM5 a kg.
But traders are free to sell it at below RM5 such as RM4.90 or RM4.80 or even as low as RM4.00.
This will depend on the traders cost structure such as transportation, marketing, workers salary and other cost.
If the trader’s cost is RM4.00, he can sell the chicken at RM4.20 and make a 20 sen profit.
If the traders cost is RM4.50, he can sell it at RM4.80 and make a 30 sen profit.
The traders can sell it at whatever prices as long as it is not above RM5.
So likewise, that is how the ceiling price of oil would work.
The oil and gas playars can sell at whatever price they want.
The profit margin will be determined by the petrol station owners and the oil and gas companies.
Up To Oil and Gas Industry to Set Ceiling Price For Oil
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Sunway University Business School Professor of Economics Dr Yeah Kim Leng said it is up to petrol station owners at how much they want to sell their oil to the rakyat.
As an example, the government might set a ceiling price of RM2.30 sen per litre for RON95.
So the petrol station owner is free to sell it at any price as long as it is below RM2.30.
If the petrol station is near the oil refinery in Port Dickson, Negeri Sembilan, the petrol dealer might want to sell it lower at RM1.80 per litre.
This is because his petrol station is near Port Dickson and the tranport cost to ferry the oil is cheaper.
But a petrol station owner far away in Bentong, Pahang might want to sell it slightly higher at RM2.20 due to higher transport cost.
A Far Away Petrol Station Owner Can Still Make Money
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However, even if the petrol station owner in Bentong is far away and the transport cost is higher, the owner can still make money than the petrol station owner in Port Dickson.
Petronas station owner Abdul Razak Lambak in Bentong said he can even sell it as low as the owner in Port Dickson.
It is a risk but hopefully, by doing so, he can recover by having more sales volume.
Although he sells it at RM1.80, he can still be profitable as his sales volume will be higher as more motorcycles and cars will go to his petrol station to up their petrol.
This is because Abdul Razak sells oil at a very good price retailing at RM1.80 compared to other petrol stations in Bentong.
Abdul Razak said this is a good strategy which will give him more sales volume.
In The End The Oil Price Ceiling Will Benefit The Rakyat
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The oil price ceiling will definitely benefit the rakyat because petrol stations all over the country will be competing against each other offering the lowest retail price of oil to the rakyat.
Petrol companies such as Shell, Petronas, Caltex, BHP and Petron will be giving discounts for the best oil prices to the rakyat.
This will only benefit the rakyat as they get to choose and shop for the best deals and the best oil price from a wide choice of oil companies.
Oil Price Ceiling is Widely Practised in The West and the US
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The oil price ceiling is not new and is widely practised in the US.
Anybody who travels in the US from Houston to Los Angeles or anywhere else in the US, they will notice that every petrol station along the road will display at the entrance their retail price of oil to its customers.
This is a good practise as it offers many choices to the people.
In the end, it is the rakyat who will benefit and they will be spoilt for choice.
Oil Price Ceiling Will Boost The Economy and Benefit Petronas Too
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The oil price ceiling will boost the economy as the rakyat will shop around looking for the best oil price in the country.
As a result, the sales volume will increase and national oil company Petronas sales will improve.
When its sales volume improve, Petronas will get more profit and when it has more profit it will be able to pay higher royalty to the government.
With higher royalty, the government will be able to spend the money to build infrastructure projects for the rakyat such as schools, roads, bridges, public houses and so many more.
All this will benefit the rakyat as they will be able to have a better quality of life.
Oil Price Ceiling Can Change, Either Go Higher or Lower
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However, the rakyat must remember that the oil price ceiling can change every month.
This is because the oil ceiling price is based on the international crude oil prices which moves all the time such as above US$100 a barrel two years ago and hover at current level of between US$50 and US$60 a barrel.
So the rakyat must be prepared and not be angry when the ceiling price of oil changes all the time.
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